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THE 


SCIENCE    OF   WEALTH 


A  MANUAL  OF  POLITICAL   ECONOMY. 


EMBRACING 


THE    LAWS    OF    TRADE,   CURRENCY, 

AND    FINANCE. 


By   AM  ASA  WALKER,   LL.D., 

LECTURER    ON    PUBLIC    ECONOMY    IN    AMHERST    COLLEGE. 


FIFTH    EDITION    REVISED. 


BOSTON : 

LITTLE,   BROWN,   AND   COMPANY. 

1869. 


Entered,  according  to  Act  of  Congress,  in  the  year  1866,  by 

A  MAS  A      WALKER, 

In  the  Clerk:s  Office  of  the  District  Court  of  the  District  of  Massachusetts. 


CAMBRIDGE  : 
STEREOTYPED  AND  PRINTED   BY  JOHN   WILSON  AND  SOS. 


PREFACE 


TO   THE    FIFTH    EDITION. 


In  preparing  the  present  edition  of  the  Science  of  Wealth 
for  the  press,  the  author  has  endeavored  to  correct  all 
errors,  typographical  and  otherwise,  that  have  been  discov- 
ered, and  has  inserted,  at  page  237,  an  original  section 
on  "  The  Development  of  the  National  Banking  System.'' 
When  the  first  edition  of  this  work  was  published,  in  1866, 
the  National  Banks  had  but  just  commenced  their  career ; 
and  the  system  was  an  untried  experiment.  Since  that  time, 
it  has  been  greatly  enlarged :  its  full  circulation  of  three  hun- 
dred millions  has  been  issued ;  and  its  operations  extended 
throughout  all  the  States  of  the  Union.  It  seemed  desira- 
ble, therefore,  to  present  such  facts  and  statistics  as  would 
exhibit  its  character  and  effects,  both  as  affording  a  profita- 
ble investment,  and  as  affecting  the  general  interests  of  the 
country.  This  has  been  necessarily  done  with  great  brev- 
ity, owing  to  the  limited  space  at  command.  No  period  in 
our  country's  history  has  been  so  instructive  upon  all  ques- 
tions appertaining  to  economic  science  as  the  present  dec- 
ade. Four  years  of  war  upon  the  largest  scale,  and  nearly 
four  years  more  of  peace ;  the  suspension  of  the  laws  of 
value  by  the  legal-tender  act  of  Congress  ;  the  high  pre- 
mium on  gold  occasioned  by  the  redundancy  of  the  cur- 


IV  P  It  E  V  A  ('  B. 

rency,  and  the  discredit  of  the  government  arising  from  the 
uncertainty  of  a  favorable  issue  to  the  contest ;  the  de- 
rangement of  the  national  industry,  first  by  the  outbreak 
of  war,  and  then  by  the  return  of  peace;  the  creation  of 
an  immense  national  debt,  and  the  establishment  of  a  sys- 
tem of  taxation  of  corresponding  magnitude,  —  all  these,  in 
their  various  and  multiplied  phenomena,  have  been  exhib- 
ited upon  a  scale  more  stupendous  than  ever  known  before 
in  this  or  any  other  country. 

Scarcely  a  principle  of  Political  Economy  but  has  received 
a  striking  elucidation  in  our  recent  national  experience. 
Many  questions,  once  in  dispute,  have  been  settled  beyond 
controversy.  That  prices  depend,  other  things  equal,  on 
the  quantity  of  currency  in  use ;  that  the  wages  of  labor 
neither  rise  as  rapidly  or  as  high  as  commodities,  when 
that  rise  is  occasioned  by  an  expansion  of  the  circulating 
medium ;  that  gold,  when  demonetized,  ceases  to  be  the 
standard  of  value,  —  these,  and  many  analogous  questions, 
have  been  illustrated  by  the  financial  operations  of  the  gov- 
ernment in  such  a  manner  that  there  is  now  no  longer 
occasion  for  a  difference  of  opinion. 

But  much  is  yet  to  be  learned  from  the  events  of  the 
future.  The  government  and  the  banks  must,  sooner  or 
later,  resume  specie  payments.  To  accomplish  this,  con- 
traction must  be  carried  to  such  an  extent  as  to  bring  the 
currency  down  to  its  natural  volume.  As  a  consequence, 
prices  must  fall  to  their  normal  rates.  All  this  will  cause 
as  great  changes,  reversed  in  their  effects,  as  followed  the 
expansion  of  1863-4,  and  while  not  a  dollar  of  property 
will  be  destroyed,  or  the  wealth  of  the  nation  be  at  all 
diminished,  all  commodities  must  be  reduced  to  their  actual 
worth  in  the  commerce  of  the  world.  This  will  bring  the 
industry  of  the  country  into  a  healthy  condition,  and  give  to 
the  laboring  classes  a  large  addition  to  their  incomes,  when 
computed  in  those  things  upon  which  they  subsist. 

This  restoration  of  the  standard  of  value  will  terminate 


PEEK  A  C  E.  V 

all  dispute  as  to  the  manner  in  which  the  bonds  of  the  gov- 
ernment shall  be  paid,  since  there  will  then  be  but  one 
currency  for  the  rich  and  the  poor,  the  capitalist  and  the 
laborer,  the  bondholder  and  the  taxpayer.  The  government 
will  then  be  able  to  consolidate  its  debt  at  a  low  rate  of 
interest,  either  with  or  without  liability  to  State  and  mu- 
nicipal taxation,  as  it  shall  deem  best.  All  financial  con- 
troversies will  thus  be  ended :  the  industry  of  the  nation, 
having  a  sound  standard  by  which  to  measure  its  products, 
will  enter  with  full  advantage  into  the  universal  competition 
of  trade. 

All  this  must  follow  from  resumption,  yet  it  cannot  be 
accomplished  without  inconvenience  and  loss  to  those  con- 
nected with  the  business  affairs  of  the  nation.  That  cannot 
be  helped.  It  is  the  inevitable  consequence  of  such  a  con- 
travention of  the  laws  of  wealth  as  the  passage  of  an  act 
making  the  promises  of  the  government  a  legal  tender  must 
necessarily  occasion  in  the  final  result ;  yet  every  day's 
delay  enhances  the  difficulty,  and  increases  the  demoraliza- 
tion inseparable  from  the  existence  of  a  false  measure  of 
value. 

The  labor  movement,  which  scarcely  attracted  attention 
when  this  work  was  first  issued,  has  grown  to  most  formi- 
dable dimensions.  Working-men  have  met  in  numerous 
conventions  throughout  Europe  and  this  country,  and  dis- 
cussed with  great  earnestness  the  various  questions  con- 
nected with  their  peculiar  interests  and  relations.  It  is  a 
matter  of  sincere  congratulation  that  the  tone  of  these  con- 
ventions, at  first  violent  and  unreasonable,  has  gradually 
become  more  consonant  with  the  true  interests  of  both 
capital  and  labor.  The  utility  of  strikes  is  no  longer  ad- 
vocated, and  the  use  of  coercive  measures  is  condemned  ; 
while  the  expediency  of  co-operation  for  purposes  of  trade 
and  industry  is  being  more  and  more  insisted  upon  and 
practically  adopted. 

The  trade  of  the  country,  so  sadly  interrupted  by  the 


VI  P  R  i:  F  A  C  E. 

events  of  the  last  seven  years,  demands  the  early  attention 
of  Congress.  Seldom  has  the  mercantile  marine  of  any 
nation  been  more  largely  reduced,  or  its  commerce  more 
generally  deranged  than  that  of  the  United  States  by  the 
devastations  of  war  and  the  contemporaneous  acts  of  the 
law-making  power.  Heavy  and  indiscreet  taxation,  joined 
with  the  paralyzing  effects  of  a  greatly  depreciated  cur- 
rency, have  nearly  put  an  end  to  ship-building,  once  a  thriv- 
ing and  important  branch  of  industry ;  while  the  onerous, 
discriminating  duties  placed  upon  foreign  merchandise  has 
greatly  diminished  the  trade  and  lessened  the  prosperity  of 
the  nation. 

In  view  of  the  facts  we  have  enumerated,  it  does  not 
appear  probable  that  the  questions  of  Currency,  Trade, 
Taxation,  and  Wages  will  lose  any  of  their  interest  for 
many  years  to  come.  Indeed,  if  we  judge  aright,  Political 
Economy  is  likely  to  be  studied  with  greater  interest  by 
all  classes  of  citizens  in  the  future  than  it  has  been  in 
the  past. 

A.  W. 

North  Brookfleld,  Mass.,  November,  1868. 


PREFACE. 


In  the  preparation  of  the  following  work,  it  has  been  my 
hope,  while  furnishing  a  Manual  of  Political  Economy, 
which  should  present  clearly  and  intelligibly  the  leading 
principles  of  the  science,  to  afford  a  full  and  thorough 
analysis  and  description  of  the  different  currencies  used  in 
the  Commerce  of  the  world,  especially  to  exhibit  the  nature 
and  effects  of  the  mixed-currency  system  of  the  United 
States. 

Regarding  the  instruments  of  exchange  as  essential,  not 
only  to  the  largest  production,  but  to  an  equitable  distribu- 
tion and  advantageous  consumption,  of  wealth,  I  have  long 
felt  that  a  work  was  needed  which  should  give  more  promi- 
nence to  the  subject  of  money  and  currency  than  it  has 
heretofore  received.  I  have  searched  in  vain  for  any  work 
on  Political  Economy,  domestic  or  foreign,  which  even 
attempted  such  a  complete  view  of  the  monetary  question,  in 
all  its  bearings,  as  it  appears  to  me  to  demand.  Especially 
does  such  a  work  seem  to  be  called  for  at  the  present  time, 
when  there  are  more  conflicting  views  and  wider  differences 


Vlll  PREPACK. 

of  opinion  among  professors  of  economic  science  on  this 
subject,  and  more  popular  ignorance  and  misconception, 
than  on  any  other.  To  pass  lightly  over  a  matter  so  impor- 
tant, so  interwoven  with  all  the  great  interests  of  society, 
has  seemed  to  me  a  great  wrong  to  those  who,  as  scholars, 
are  expected  to  prepare  themselves  for  active  duties  and 
responsible  positions,  and,  as  citizens,  are  to  decide  by  their 
votes  the  financial  policy  of  the  country. 

In  1857,  I  endeavored,  in  a  series  of  articles  upon  Politi- 
cal Economy,  in  the  (New  York)  "  Merchants'  Magazine,"  to 
show  the  nature  and  effects  of  mixed  currency,  and  its 
practical  influence  upon  trade  and  industry.  This,  so  far 
as  I  know,  was  the  first  attempt  of  the  kind.  These 
articles,  in  connection  with  other  matter  appertaining  to  the 
same  subject,  were  published  in  pamphlet  form  in  December 
of  that  year.*  In  1859,  a  small  but  excellent  work  on  Politi- 
cal Economy  appeared,  from  the  pen  of  Professor  Bascom, 
of  Williams  College,  presenting  the  currency  question  with 
great  correctness,  but  with  such  brevity  as  not,  in  my  view, 
fully  to  meet  the  wants  of  the  public.  Within  the  present 
year,  and  since  this  work  has  been  mostly  in  manuscript,  a 
manual  has  been  published  by  Professor  Perry,  also  of  Wil- 
liams College.  It  is  a  work  of  great  merit ;  the  chapter  on 
Foreign  Traple  being  the  most  able  essay  upon  that  subject 
which  has  fallen  under  my  observation.  The  work  contains 
sound  views  in  regard  to  currency,  and  a  more  extended 
discussion  than  any  that  has  preceded  it ;  yet  it  does  not 
give  so  full  analysis  as  I  had  already  prepared,  such  as  it 
seems  to  me  one  work,  at  least,  should  contain. 

*  Walker  on  Money  and  Mixed  Currency,  83  pp. 


PREFACE.  ix 

And  here  I  would  recognize  the  earnest  and  efficient 
labors  of  William  M.  Gouge,  of  Philadelphia,  who  published 
in  1841-2  "  A  Journal  of  Banking,"  and  subsequently  "  A 
Short  History  of  Paper  Money,"  in  both  of  which  he  pre- 
sented an  immense  array  of  facts,  statistics,  and  arguments, 
calculated  to  awaken  inquiry.  He  was  the  pioneer  in  the 
great  work  of  calling  public  attention  to  the  effects  of  such 
a  substitute  for  money ;  and  his  labors  are  appreciated  in 
this  country  and  Europe,  by  those  acquainted  with  his 
writings. 

Nor  would  I  fail  to  acknowledge  the  valuable  services 
rendered  to  this  department  of  the  science  by  a  profound 
student  and  able  writer  in  our  public  journals,  over  the  sig- 
nature of  "  Bullionist,"  whose  untiring  efforts  have  done 
very  much,  to  diffuse  correct  ideas  in  regard  to  the  nature 
of  money  and  currency. 

I  presume  many  persons  will  feel  that  a  larger  space  has 
been  given  to  currency  than  properly  belongs  to  it.  To  this 
I  can  only  reply,  that  nothing  is  inserted  not  deemed  rele- 
vant and  essential  to  a  complete  understanding  of  the 
question  at  issue,  in  all  its  relations.  Statistics,  facts,  and 
diagrams  have  been  introduced  to  substantiate  the  princi- 
ples announced,  and  impress  their  truthfulness. 

It  may  be  thought,  that  too  many  and  too  minute  details 
have  been  given  in  regard  to  trade  and  business  affairs ;  but 
experience  has  shown  me,  that  we  cannot  safely  assume 
that  the  students  of  a  college,  or  the  masses  of  the  people, 
are  so  well  informed  in  regard  to  these  matters  as  to  make 
such  explanations  and  illustrations  unnecessary. 

Another  motive   that  has   influenced  my  mind   in   the 


X  PREFACE. 

preparation  of  this  volume  has  been  the  desire  to  produce 
a  work  especially  accessible  and  useful  to  business  men, 
merchants,  manufacturers,  &c.  They  have  a  deep  and 
immediate  personal  interest  in  all  economical  questions,  and 
need  particularly  to  be  fully  informed  of  the  character  of 
that  instrumentality  by  which  exchanges  are  made,  and 
obligations  discharged.  They  are  not  prepared  for  the 
responsibilities  and  hazards  of  their  several  callings,  unless 
they  fully  comprehend  the  causes  which  operate  to  increase 
or  depress  trade,  to  assure  or  endanger  credit,  to  expand  or 
contract  currency.  Political  Economy  may  be  considered 
as  emphatically  a  business  science. 

But,  while  a  knowledge  of  the  laws  of  wealth  is  especially 
desirable  and  useful  for  particular  classes  and  professions, 
it  is  obvious  that  the  masses  of  the  people  should  have  an 
intelligent  understanding  of  its  principles.  In  a  country 
where  suffrage  is  universal,  every  man  is  virtually  a  law- 
giver. His  opinions  will  influence  his  action  in  his  choice 
of  those  who  are  to  decide  the  policy  of  the  government, 
which  will  be  but  the  general  expression  of  the  popular  will. 
Every  man  has  his  ideas  of  currency,  trade,  and  finance ; 
and,  however  imperfect  or  mistaken,  they  influence  his  polit- 
ical action.  Hence  the  great  desirableness  of  a  general 
diffusion  of  sound  views  upon  all  questions  appertaining  to 
the  economical  interests  of  the  country. 

That  Political  Economy  is  a  science  having  nothing  to  do 
with  morals  or  religion,  nor  in  any  way  appertaining  to 
human  welfare,  except  so  far  as  relates  to  the  production 
and  accumulation  of  wealth,  is  a  common  opinion ;  but  it 
may  be  fearlessly  asserted,  that  no  other  science  is  so  inti- 


PREFACE.  XI 

mately  connected  with  the  destiny  of  the  human  race,  in  its 
highest  and  most  enduring  interests.  Such  has  been  the 
uniform  testimony  of  those  in  the  clerical  profession  who 
have  given  special  attention  to  its  teachings.  Dr.  Chal- 
mers, while  he  held  the  chair  of  Divinity  in  the  University 
of  Edinburgh,  gave  lectures  upon  Political  Economy.  In 
the  preface  to  the  volume  he  published  upon  the  subject,  he 
says,  "  We  cannot  bid  adieu  to  Political  Economy  without 
an  earnest  recommendation  of  its  lessons  to  all  who  enter 
upon  the  ecclesiastical  profession."  Rev.  Dr.  Bethune,  in 
his  address  before  the  Literary  Society  of  Yale  College, 
1845,  spoke  of  Political  Economy  "  as  that  philanthropic 
science,  which,  next  to  the  gospel,  whose  legitimate  offspring 
it  is,  will  do  more  than  any  thing  else  for  the  elevation  and 
fraternization  of  our  race."  Bishop  Whately  was  heard  to 
remark,  a  short  time  before  his  death,  that  "  no  theological 
seminary  should  be  without  its  chair  of  Political  Economy." 
Agreeing  fully  with  the  opinions  expressed  by  these  emi- 
nent men,  I  have  felt  desirous,  throughout  the  following 
work,  to  show  how  perfectly  the  laws  of  wealth  accord  with 
all  those  moral  and  social  laws  which  appertain  to  the 
higher  nature  and  aspirations  of  man. 

Taxation  in  all  its  forms,  as  imposed  by  national,  state,  or 
municipal  authority,  has  received  a  large  share  of  attention 
in  this  work.  The  great  change  that  has  taken  place  in  the 
fiscal  condition  of  the  country,  by  which  the  different  modes 
of  raising  revenue  have  become  matters  of  the  first  impor- 
tance to  every  citizen,  has  been  an  inducement  to  enter 
more  fully  into  details  than  usual  with  writers  on  the 
general  science  of  public  economy.     The  American  system 


Xii  PREFACE. 

of  taxation  is  more  complex,  perhaps,  than  any  other,  from 
the  fact  of  its  triple  character ;  that  on  the  part  of  the 
general  government  being  both  direct  and  indirect,  while 
that  by  State  and  municipal  authorities  is,  in  the  main, 
direct,  upon  property  and  polls.  The  National  Debt  and 
Public  Finances  occupy  that  position  in  the  present  work 
which  their  importance  seems  to  require.  The  subject  may 
almost  be  regarded  as  a  new  one  in  this  country. 

References  are  made  in  this  work  to  the  writings  of  the 
late  M.  Frederick  Bastiat.  No  author  of  the  present  age 
has  done  more  to  dispel  popular  delusions,  and  expose  pop- 
ular sophisms,  —  especially  in  his  own  country,  France.  It 
would  be  well  if  his  writings  were  more  extensively  read  in 
this  country  ;  and  the  republication  of  his  "  Harmonies  of 
Political  Economy  "  here  would  be  a  great  benefaction  to 
the  public. 

We  are  already  furnished  with  the  valuable  work  of  John 
Stuart  Mill,  who  is  undoubtedly  the  ablest  of  living  writers. 
Though  more  especially  adapted  to  European  than  American 
use  in  the  application  of  economic  principles,  it  is  exten- 
sively read  in  this  country.  While  the  science  of  wealth 
is  always  and  everywhere  the  same,  it  is  equally  true  that 
certain  subjects  of  which  it  treats  have  a  more  practical 
interest  in  one  country  than  another ;  and,  of  course,  the 
importance  attached  to  different  topics  will  be  determined 
by  that  consideration.  Pauperism,  and  the  economy  of  the 
poor-laws,  may  be  a  matter  of  deep  concern  where  a  fright- 
ful proportion  of  the  people  are  dependent  upon  public 
charity,  but  of  little  consequence  where  very  few,  as  in  this 
country,  are  found  in  that  condition.     It  is  for  this  reason, 


PREFACE.  Xlll 

that  each  community,  while  recognizing  precisely  the  same 
economic  laws,  finds  that  the  subjects  to  which  they  may  be 
applied  vary  greatly  in  importance. 

I  cannot  claim  for  myself  any  peculiar  qualifications  for 
the  work  I  have  undertaken.  Some  twenty  years  of  my 
early  life  were  devoted  to  pursuits  connected  with  the  trade 
and  manufacturing  industry  of  the  country,  while  a  longer 
period  has  since  been  devoted  to  the  study  of  the  laws  of 
wealth.  A  practical  knowledge  of  business  and  banking 
affairs  generally,  and  a  most  earnest  and  persistent  search 
for  the  truth  in  all  matters  appertaining  to  my  favorite  sci- 
ence, are  the  only  claims  I  have  to  the  attention  of  the 
public. 

I  should  do  injustice  to  my  own  feelings,  if  I  did  not 
acknowledge  the  valuable  assistance  of  my  son,  General 
Francis  A.  "Walker,  late  of  the  volunteer  service  of  the 
United  States,  without  whose  aid  it  would  have  been  nearly 
impossible,  amid  other  avocations,  to  complete  this  work. 

A.  W, 

North  Brookfield,  Mass.,  1866. 


TABLE   OF  CONTENTS. 


BOOK  I.— DEFINITIONS. 

Chapter  I.  —  Character  of  the  Science. — Distinguished  from  politics,  1. 
— The  economical  circle,  2. — Man's  wants  and  nature's  supply  being 
constant,  political  economy  a  positive  science,  3. — How  far  affected 
by  legislation,  4. — Prejudices  which  retard  its  progress,  5. 

Chapter  II.  —  Definition  of  Wealth.  —  Includes  all  articles  of  value,  and 
nothing  else,  7. 

Chapter  IH.  — Definition  of  Value.  Objects  of  human  desire,  obtained 
by  human  effort,  have  value,  and  none  else.  Value  is  power  in 
exchange,  and  nothing  else,  8.  —  Illustrations,  chiefly  from  F. 
Bastiat,  9. 

Chapter  IV.  —  Distinction  between  Value  and  Utility.  —  One  of  kind, 
and  not  of  degree,  14. — Material  wealth  assumed  to  be  a  good,  15. 
—  Nature  gives  value  to  nothing,  1G. 

Chapter  V. — Definition  of  Labor.  —  Services  of  slaves  not  labor,  18. 

Chapter  VI.  —  Definition  of  Capital.  —  The  labor  of  the  past,  19. — 
Growth  of  capital  illustrated,  20. 

Chapter  VII.  —  Relation  of  Capital  and  Labor. — Should  be  competi- 
tors, not  antagonists,  21. — Results  of  their  hostility  in  France,  22. 

Chapter  Vni.  —  General  Division  of  the  Science. — Production,  ox- 
change,  22.  —  Distribution,  consumption,  23. 


XVI  CONTENTS. 


BOOK  II.  —  PRODUCTION. 

Chapter  I.  —  Forms  of  Production.  —  Transmutation  chiefly  work  of 
agriculturist,  24.  —  Agriculture  supplies  men  and  materials  for 
other  industries,  25. —  Includes  mining  and  fisheries,  26.  —  Trans- 
formation chiefly  work  of  manufacturer,  26.  —  Distribution  of  manu- 
factures, not  so  generally  as  agriculture,  governed  by  the  industrial 
genius  of  peoples,  27. — By  territorial  advantages;  by  great  acci- 
dents, 28.  —  Manufacturers  employ  fewer  laborers,  but  greater 
machine  power,  29.  —  Transportation  chiefly  work  of  merchant,  29. 
— Where  does  the  chemist  belong?  this  division  arbitrary;  their 
forms  generally  united,  30. 

Chapter  II.  —  Conditions  of  the  Highest  Production.  —  Division  of 
labor;    co-operation  of  capital ;    economic  culture,  31. 

Chapter  IDT.  —  Division  of  Labor.  —  Illustrated;  does  this  saving  of 
time  promote  indolence?   32.  —  How  far  carried  in  fact?  33. 

Chapter  IV. —  The  Advantages  of  Division  of  Labor.  —  Increased  dex- 
terity; better  knowledge  of  business,  3-4. — Time  saved  in  tran- 
sition; invention  facilitated,  as  in  American  manufactures,  35. — 
Individual  abilities  adapted  to  work ;  the  weakest  employed,  36. 
—  Power  of  capital  increased;  manufactures  concentrated;  profits 
reduced,  37.  —  Apprenticeship  shortened,  38.  —  Social  development 
facilitated,  and  influence  of  laboring  classes  increased,  39. 

Chapter  V. — The  Limitations  to  the  Division  of  Labor. — When  the 
operation  can  no  longer  be  subdivided;  when  interested  personal 
supervision  fails ;  when  the  operations  cannot  be  sufficiently  local- 
ized, 40.  —  By  the  necessities  of  the  seasons;  for  example,  agricul- 
ture, 41.  —  Hence  tendency  of  agricultural  products  to  rise  in  price; 
division  of  labor  applied  to  sciences  and  professions,  42.  —  Special- 
ties recommended,  43. 

Chapter  VI.  —  The  Disadvantages  of  Division  of  Labor.  —  Tends  to 
enervate  the  laborer,  43. — This  may  be  avoided,  44.  —  Lesson  of 
the  recent  war ;  tends  to  cramp  and  enfeeble  the  mind ;  this  com- 
pensated, in  part,  by  the  greater  communicativeness,  45.  —  By  the 
intimate  connection  of  mental  faculties,  and  by  opportunities  outside 


CONTENTS.  XV11 

of  labor  for  culture,  46.  — Tends  to  lower  average  of  health,  shorten 
life,  and  diminish  reproduction,  47. —  Table  showing  average  of  life 
in  different  occupations;  inaccuracies  in  vital  statistics,  48.  —  Check- 
ing propagation  in  cities  not  an  evil;  lessens  the  number  doing 
business  for  themselves ;  relation  of  this  to  the  formation  of  character, 
49. — To  the  fairness  of  remuneration;  to  steadiness  of  employ- 
ment, 50.  —  The  last  disadvantage  being  removed  by  the  mutual 
system  in  trade,  insurance,  fisheries,  &c,  52.  __ 

Chapter  VII.  —  The  Division  of  Labor  (concluded').  —  Balance  of  re- 
sults in  favor  of  extension  of  the  principle,  53.  —  The  mercantile 
theory,  54. 

Chapter  VIH.  —  The  Co-operation  of  Capital.  —  Capital  is  wealth 
employed  in  reproduction,  55. — Distinction  between  capital  and 
wealth;  capital  comes  from  savings  of  labor,  56. — Fixed  and  cir- 
culating, 57. 

Chapter  IX.  —  The  Co-operation  of  Capital  (continued). — No  unpro- 
ductive capital,  58. 

Chapter  X.  —  The  Co-operation  of  Capital  (continued).  —  The  union 
of  capital  and  labor  effective  when  in  just  proportions ;  labor  to 
decide  the  amount,  60. — That  amount  varies  in  different  coun- 
tries, 61.  — What  in  United  States?  62.  — In  Great  Britain?  why 
Ireland  is  so  depressed,  63.  —  Can  there  be  a  surplus  of  capital? 
lesson  from  Genoa  and  Venice,  64.  —  Capital  checked  by  luxury,  65. 

—  Emigration  of  capital,  66. 

Chapter  XI.  —  The  Co-operation  of  Capital  (concluded).  —  Its  union 
with  labor  effective,  again,  when  each  is  sure  of  its  reward ;  injustice 
the  death  of  industry,  66. — Warning  from  France,  67.  —  From 
Spanish  conquests ;  from  Asia ;  again,  when  capital  is  well  distribu- 
ted, 68. — Limits  to  its  aggregation;  American  error  in  regard  to 
corporations;  again,  when  there  is  freedom  of  industry,  69.  —  Mis- 
chief of  multiplied  restrictions  ;  work  of  politician  impertinent,  70. 

Chapter  XII.  —  Economic  Culture. — Is  the  distinction  between  pro- 
ductive and  unproductive  labor  real  ?  Adam  Smith's  list  of  unpro- 
ductive laborers,  71. — All  labor  productive,  72. — Examples,  73. 

—  Economic  culture  concerned  with  secondary  influences  of  produc- 
tion, the  rebound  from  consumption,  74.  —  Here  production  touches 
consumption.  75. 


XV111  CONTENTS. 

BOOK    m.— EXCHANGE. 

Part  I.  —  Trade. 

Chapter  I. — The  Principle  of  Trade. — Arises  from  division  of  labor; 
illustrated  by  savage  life,  77. — Divided  as  domestic,  carrying,  and 
foreign,  78.  —  Its  amount  governed  by  surplus  production,  79. — 
Those  trade  most  together  whose  productions  differ ;  kind  of  pro- 
ducts determined  by  soil,  80. — Climate,  social  condition,  ethnical 
peculiarities;  territorial  division  of  labor,  81. — Has  few  limitations 
and  no  disadvantages,  82.  —  General  principles  of  trade  are  neces- 
sity of  surplus,  community  of  interests ;  that  community  often  in- 
dependent of  direct  exchange,  83.  —  Largest  production  and  best 
distribution  effected  by  territorial  division  of  labor;  international 
unity  secured;  wars  diminished  in  number,  malignity,  and  dura- 
tion, 84. 

Chapter  n.  —  Obstructions  to  Trade.  —  May  be  regarded  as  protection 
to  local  industry;  protection  from  physical  obstructions,  85. — 
Measured  chiefly  by  bulk  and  weight  ;  diminished  by  improved 
transportation,  86.  —  But  never  annihilated,  87. — Protection  from 
social  obstructions;  illustrated  by  American  civil  war,  88. — Legal 
protection;  this  of  three  kinds, — prohibition,  bounties,  imposts,  89. 
-  Only  necessary  to  discuss  the  last,  90. 

Chapter  IH. — Protection.  —  May  be  for  four  causes,  —  revenue,  to 
encourage  home  production,  to  support  capital  already  enlisted, 
to  secure  commercial  independence ;  for  revenue,  considered ;  a 
species  of  taxation,  90.  —  Should  be  governed  by  what  shall  be 
decided  in  regard  to  protection ;  to  encourage  home  production, 
considered;  the  battle-field  of  protection  ;  two  propositions,  91. — 
Reducible  to  one,  i.e.  man's  economic  desires  need  government  by 
law;  that,  false,  92.  —  Illustrated  by  American  manufacture  of  iron  ; 
best  example,  for  six  reasons  stated ;  yet  we  do  not  produce  success- 
fully ;  why?  not  for  want  of  knowledge,  93. — Nor  of  capital: 
business  creates  its  own;  nor  of  facilities  and  material,  94. — Im- 
portance of  juxtaposition ;  example  from  India ;  nor  of  natural 
protection  ;  why,  then  ?  we  can  do  better ;  superior  profitableness  of 
agriculture,  95.  —  Yet  protection  was  applied,  96. — Effect?  iron 
produced;  a  great  loss  to  general  production,  97.  —  Wasteful  ex- 
periments, 98. — Excluded  country  suffers  less  than  the  protected, 


CONTENTS.  xix 

99. — Folly  of  anticipating  agricultural  glut;   the  natural  growth  of 
manufactures,  100. 

Chapter  IV. — Fallacies  of  the  Protection  Theory. — That  it  is  necessary 
to  protect  infant  manufacturers,  101.  —  Answer,  this  protects  good 
and  bad  alike,  and  encourages  the  birth  and  growth  of  worthless 
enterprises ;  the  infant  may  cost  more  than  the  man  will  be  worth ; 
example,  beet-root  sugar  in  France,  102. — That  it  will  protect  us 
against  the  pauper  labor  of  Europe ;  answer,  this  system  started  the 
immigration,  and  has  continued  it,  104.  —  That  it  raises  the  average 
of  profits,  which  is  simply  absurd,  105.  — That  manufacturing  coun- 
tries are,  somehow,  richer  than  agricultural ;  answer,  they  are  older, 
105.  —  Besides,  only  those  are  richer  which  have  taken  to  manufac- 
tures by  reason  of  natural  adaptations,  .106.  —  Manufactures,  to  a 
certain  extent,  arise  by  natural  protection  in  every  country;  to 
attempt  more  than  this  is  simply  waste  of  power,  107. — That  it  is 
necessary  to  develop  our  resources ;  answer,  American  labor  has 
always  been  fully  occupied,  and,  when  let  alone,  in  the  most  profitable 
business  ;  it  can  do  no  more  by  force  of  law ;  our  ores  will  not  spoil 
by  waiting,  108. 

Chapter  V. — Protection  (continued). — Have  discussed  two  reasons 
given  in  chap.  iii. ;  next,  to  support  existing  manufactures,  on  the 
ground  of  justice ;  answer,  not  a  question  of  economy ;  better,  how- 
ever, to  pay  outright  for  them  than  repeat  and  continue  mistakes  by 
false  legislation ;  allowing  all  the  protectionist  claims,  protection  is 
an  absurdity  in  American  politics ,  109 . — Fourth  reason,  to  secure 
independence ;  answer,  simple  barbarism ;  rejoinder,  it  is  necessary 
to  safety  in  war,  110.  —  Examined  and  found  untrue,  111. — Final 
claim  of  the  protectionist,  retaliation  ;  found  to  be  more  injurious  to 
the  protected  than  the  excluded,  112.  —  French  treaty  of  Mr.  Cobden, 
113. — The  natural  industry  of  the  United  States  is  agriculture; 
some  sections  would  manufacture  without  protection,  as  they  began 
to  do,  115. —  "  Let  us  alone,"  the  policy  of  trade,  115.  —  Was  the 
original  policy  of  New  England;  protection  the  disease  of  in- 
dustry, 117. 

Chapter  VI. —  Balance  of  Trade. —  The  true  state  of  trade  cannot  be 
ascertained  by  inspection  of  official  returns ;  the  profit  of  exporta- 
tion and  importation  generally  make  the  difference  between  an  adverse 
or  favorable  trade;  our  foreign  trade  in  1863,  118. — Frauds  at 
Custom  House  sufficient  to  change  the  balance  from  one  side  to  the 
other,  120. 


XX  CONTENTS. 


book  m. 

Part  II.  —  Instruments  of  Exchange 

Chapter  I.  —  Barter  and  the  different  forms  of  Currency.  — Three  in- 
struments of  exchange,  viz.  barter,  currency,  different  forms  of 
credit;  difficulties  attending  barter,  121. — A  currency  wanted  to 
act  as  a  medium  of  exchange,  122. — And  as  a  standard  of  value; 
requirements  of  such  a  standai-d,  123.  —  Currency  of  four  kinds, 
viz.  money,  credit,  mixed,  and  mercantile  currency,  124. 

Chapter  IT. — Money. — Forms  used  in  different  ages  and  countries, 
126.  —  Advantages  of  gold  and  silver;  possess  value,  are  stable  in 
value,  127.  —  Conveniently  portable,  malleable,  of  uniform  quality 
everywhere,  can  be  readily  alloyed  or  refined,  are  indestructible  by 
accident,  generally  diffused,  sufficiently  plentiful  for  trade,  128.  — 
And  nearly  inconsumable  by  use,  129. — Coinage,  its  advantages, 
130. — United  States  Government  seigniorage,  130 ;  government  gives 
no  value  to  coin,  only  certifies  weight  and  fineness,  131. 

Chapter  ITT.  —  Credit  Currency.  —  Transfers  debts,  does  not  pay  them ; 
inevitably  at  a  discount ;  folly  of  gold  bill  by  Congress,  132.  —  Occa- 
sions rise  of  prices ;  effect  on  United  States  during  Rebellion ; 
depreciates  fixed  incomes  and  real  estate,  133. — Vitiates  contracts 
(see  American  Revolution  and  Rebellion),  134.  —  Never  kept  to  the 
natural  volume  of  currency;  seldom  paid,  135.  —  In  effect  a  forced 
loan ;  a  direct  tax,  136.  —  Government  does  not  get  full  value,  137. — 
Loss  to  United  States  during  late  war  from  use  of  credit  currency,  138. 

Chapter  IV.  —  Mixed  Currency. — A  modern  invention;  Bank  of 
England,  138.  —  Composition ;  called  mixed,  because  consisting  of 
value  and  credit ;  its  quality  the  proportion  between  the  two  ele- 
ments, 139. —  Convertibility  distinguished  from  redeemableness,  140. 
—  Inconvertible  currency  annihilated  by  being  redeemed ;  analysis 
of  bank  returns  ;  definition  of  terms,  141. — Bank  balances  the  most 
dangerous  element;  agency  in  suspension  of  banks  of  New  York  and 
Bank  of  Englaud,  142. — Resources  of  banks ;  definition  of  terms, 
144.  —  What  the  source  of  profit  ?  motive  power  in  expansion,  145.  — 
Quality  of  the  United  States  currency  1860,  146.  —  Grand  problem 
of  banking,  147 


CONTENTS.  XXI 

Chapter  V.  —  Analysis  of  Deposits.  —  Already  defined  ;  arise  in  five 
ways,  148.  — May  be  classified  as  compulsory,  fiduciary,  and  active  ; 
the  first  kept  to  secure  discounts,  149. — Highly  dangerous  to  the 
currency  ;  not  known  in  England,  as  there  are  no  usury  laws,  150.  — 
Other  kinds  legitimate ;  are  deposits  currency  ?  opinion  of  Lord 
Overstone,  151. — Of  New-York  Board  of  Currency;  they  are  as 
much  an  instrumentality  of  exchange  as  bank-notes,  152.  —  Indeed, 
more  active ;  stocks  not  immediate  resources  to  a  bank ;  cannot  be 
realized  in  panic  or  pressure,  153. 

Chapter  VI. —  Mixed  Currency,  Fluctuations  in  Quantity  and  Quality. 
—  We  have  two  great  questions:  1st,  does  mixed  currency  perform 
satisfactorily  the  functions  of  money  ?  2d,  what  its  effects  upon  public 
interests  ?  154.  —  Only  one  of  these  at  present  (see  chap,  x.)  ;  mixed 
currency  not  governed  by  laws  of  value,  beoause  it  has  not  value ; 
can  be  increased  without  labor,  and  must  be  withdrawn  for  reasons 
not  affecting  articles  costing  labor,  155. — Expansion  always  in  ex- 
cess, because  it  creates  speculation  and  a  feverish  demand,  156.  — 
Because,  also,  banks  are  interested  to  crowd  it  out ;  contraction  takes 
place  from  any  cause  which  affects  credit ;  hence  without  regard  to 
laws  of  value,  157. — Export  of  specie  withdraws  only  its  own  amouut 
of  value  currency,  but  of  credit  currency  that  amount  multiplied  by  a 
factor  expressing  proportion  of  credit  to  value,  158.  —  Sound  banks 
no  better  than  unsound  in  panic  ;  movement  of  expansion  begins  with 
the  banks,  not  from  want  of  trade,  159. — Tides  of  business  need 
not  be  ruinous,  160. 

Chapter  VII.  —  Tables  and  Diagrams  of  Mixed-Currency  Fluctua- 
tions. —  Table  I.,  in  absolute  quantity,  United  States,  1834-59,  161. 
— Diagram  1,  in  currency  and  proportion  of  specie  per  capita,  same 
period;  Table  II.,  extremes  of  fluctuation,  currency  United  States  per 
capita,  and  quality  of  same,  1834-59,  162.  —  Table  HI.,  quality  of 
currencies  in  the  several  States,  1860 ;  Table  IV.,  of  currency  of  Mas- 
sachusetts, different  dates ;  currency  of  New  England  a  unit  under 
Suffolk  system,  163. 

Chapter  VIII.  — Mixed  Currency  as  a  Medium  of  Exchange  (see  chap, 
vi.).  — Two  offices  of  such  a  medium  ;  to  transfer  commodities,  164. 
—  Mixed  currency  satisfactory  for  this  ;  to  discharge  indebtedness  , 
coin  always  reliable,  165. — The  best  trader  cannot  rely  on  mixed 
currency,  for  it  may  be  withdrawn  when  his  obligations  mature,  166.  — 
He  must  fail ;  credit  not  reliable  for  money,  167.  —  Dilemma  of  banks 
in  panic;  they  choose  suspension,  168. 


XX11  CONTENTS. 

Chapter  IX. —  Mixed  Currency  as  a  Standardqf  Value.  —  Vast  impor- 
tance of  this  function,  169.  — Denial  by  some  of  a  standard  ;  answer, 
170.  —  Legal  tender,  what?  171.  —  The  fluctuations  shown  in 
tables  and  diagrams  prove  mixed  currency  to  be  unjust  and  mis- 
chievous as  a  standard,  172.  —  Immense  transfers  of  value  without 
an  equivalent,  173.  —  Extract  from  "North-American  Review;" 
Price,  what  is  it?  174.  —  Distinction  between  price  and  value,  175 
—  Illustrated  from  Confederate  States,  170. —  Table  V.,  average  price 
often  commodities  for  twenty-six  years,  177.  —  Diagram  2,  corre- 
spondence of  prices  and  currency  circulation,  except  as  explained  by 
law  of  speculations,  179.  —  Cotton  and  flour  omitted  for  reasons  after 
given;  these  calculations  per  capita ;  these  fluctuations  greater  thaii 
possible  with  value  currency,  180. — Effect  on  former  illustrated, 
181. — Who  gains  by  all  this?  not  the  laborer,  182. — What  is 
gained  ?  only  price ;  who  gains  it  ?  debtor  or  creditor,  as  the  case 
may  be  ;  distinction  between  general  and  special  prices,  183. 

Chapter  X. —  Effects  of  a  Mixed  Currency  (see  chap.  vi.).  —  1st,  En- 
dangers domestic  tranquillity ;  puts  the  finances  at  the  mercy  of  a 
faction,  184.  —  Currency  of  Massachusetts,  Diagram  No.  3;  sav- 
ings banks  complicate  the  matter,  185.  — Elements  of  our  population 
make  this  highly  dangerous,  186.  —  2d,  Demoralizes  society  and 
industry,  by  exciting  to  speculation,  enriching  without  merit,  and 
ruining  without  blame,  187.  —  3d,  Endangers  national  safety  in  war, 
187.  —  Obliges  a  nation  to  carry  on  war  with  broken-down  currency  ; 
England  against  Napoleon;  United  States  in  great  Rebellion,  188. — 
If  any  gain  can  be  made  by  substitution  of  credit,  it  should  be 
reserved  till  the  emergency,  189. —  4th,  Discourages  domestic  manu- 
factures, and  puts  a  nation  at  a  disadvantage  in  commerce,  191. — 
Has  always  neutralized  our  tariff,  192. — Distresses  of  American 
manufactures  due  to  the  currency ;  popular  error,  that  high  duties 
restrict  importations,  disproved  by  Diagram  4  ;  want  of  corre- 
spondence in  two  lines,  193.  —  Another  cause  needed;  Diagram  5 
shows  relation  between  currency  and  imports  ;  exact  correspondence, 
195.— Extract  from  "  Bankers'  Magazine,"  186. 

Chapter  XL — Effects  of  Mixed  Currency  (concluded).  —  5th,  Disturbs 
and  enhances  interest,  196. — This  the  natural  result  of  its  raising 
prices  and  increasing  indebtedness,  while  itself  falls  away  at  the 
moment  of  need  ;  Diagram  6,  197.  —  Frequent  and  extreme  fluctu- 
ations ;  highest  interest  with  greatest  expansion ;  lowest  with  least 
currency,  198.  —  Interest  in  United  States  and  Great  Britain  com- 
pared   199. — Table  VL,  fluctuation  in  interest,  United  States  and 


CONTENTS.  XX111 

Great  Britain,  1844-58,  200.—  Table  VII.,  fluctuations  at  Bank  of 
England,  160  }rears ;  effects  of  great  revolutions  indicated,  201. — 
Currency  of  Great  Britain  compared  to  that  of  the  United  States  as 
to  circulation  and  deposits  ;  superior  quality  of  British,  202.  —  Irish 
and  Scotch  currency  ;  estimated  specie  in  United  Kingdom  ;  numerous 
failures  in  Scotland,  203.  —  Failures  in  United  States;  British  bank 
reserve;  Table  VIII.,  fluctuations  in  bank  reserve,  204.  —  Diagram 
No.  7  ;  effects  of  mixed  currency  on  American  agriculture  ;  its  pro- 
ducts sold  at  gold  prices,  while  the  farmer  purchases  at  curren ca- 
prices, 205. — Table  IX.,  price  of  wheat  and  flour  from  1846-59,  with 
currency  ;  compared  with  general  prices  (see  chap,  ix.) ;  no  corres- 
pondence ;  suffering  of  Western  farmers,  206.  —  Interest  of  the  "West 
for  value  money,  207. 

Chapter  XII.  —  Fallacies  regarding  a  Mixed  Currency.  —  1st,  That  it 
increases  capital,  207.  — Credit  not  capital ;  2d,  that  it  cost  less  than 
money,  208.  —  Instruments,  to  be  cheap,  must  be  efficient ;  mixed 
currency  is  not ;  cost  of  value  currency,  209.  —  Damage  of  mixed 
currency  estimated ;  greatly  exceeds  the  saving,  210.—  Gold  circu- 
lates itself;  mixed  currency  requires  machinery  and  great  expense  to 
keep  it  out,  211.  — Adam  Smith's  figure,  and  comments  ;  3d,  that  it 
has  caused  the  prosperity  of  the  United  States,  212.  —  No  grounds 
for  the  supposition ;  4th,  that  there  is  not  gold  and  silver  enough ; 
absurd  since  discovery  of  Australia  and  California,  213. — Never 
was  true  ;  much  gold  never  used  as  money  ;  amount  used  in  United 
States  not  greatly  increased  by  yield  of  California,  214.  —  Has  been 
exported ;  quotation  from  J.  S.  Mill ;  5th,  that  it  is  favorable  to  young 
men,  215.  —  Particularly  injurious  to  them,  enhancing  the  risks  of 
credit,  which  they  especially  need  ;  6th,  that  we  could  not  have  banks 
without  it,  216. —  Banking  may  be  profitable  without ;  illustrated  from 
British  joint-stock  banks,  217.  — Do  not  object  to  banks,  but  only  to 
manufacture  of  currency,  218. — Banks  used  to  be  safe  and  bene- 
ficial ;  Bank  of  Hamburg ;  7th,  that  it  can  be  regulated  by  law ; 
the  only  cause  of  the  evil  is  want  of  value ;  the  only  cure,  to  supply 
that;  no  remedy  but  revolution,  219. —  8th,  That  banks  ought  to 
"stave  off"  suspension ;  suspension  the  only  relief  the  public  can 
have ;  is  a  wrong,  but  one  included  in  the  original  wrong  of  fictitious 
currency,  220.  —  9th,  That  at  least  stockholders  are  enriched  by  ex- 
pansion ;  not  always  or  generally,  221.  —  How  stockholders  may  be 
affected,  222. —  Nothing  but  price  gained,  and  that  unjustly  and  to 
the  prejudice  of  one  party  ;  it  is  swindling,  223. 


XXIV  CONTENTS. 

Chapter  XTTT.  — Mercantile  Currency.  —  A  substitute  for  the  precious 
metals;  combines  reliability  with  the  convenience  of  paper;  not  a 
novelty,  224. —  First  substitute  currency;  Bank  of  Genoa,  bills  based 
on  full  specie;  Bank  of  Amsterdam,  225.  —  Bank  of  Hamburg ;  Eng- 
land needs  such  a  currency,  226.  —  English  finance  continually 
disturbed,  and  millions  of  annual  loss  involved,  for  a  paltry  saving ; 
United  States  still  worse,  227.  —  The  change  of  currency  easy  to 
effect  :  issue  of  small  notes,  228.  —  Amount  of  paper  money  required 
in  United  States  ;  legitimate  banking  profitable,  229.  —  Needs  no 
legislation  ;  transition  easy  ;  some  banks  would  be  superseded  ;  bank- 
ing should  be  free,  but  not  the  manufacture  of  currency,  230.  — 
Government  should  furnish  a  certified  currency,  231.  —  This  would 
not  give  the  government  any  control  over  the  currency,  232. 

Chapter  XIV. —  The  National  Currency  of  the  United  States .  — Differs 
from  the  old  system  ;  is  under  national  control ;  ultimate  redemption 
of  notes  secured,  233. — Legal  tender;  uniform  value  through  the 
States;  provision  made  for  banks  holding  "lawful  money"  with 
which  to  redeem,  234. — Last  provision  frustrated  by  allowing 
"  balances  "  to  be  counted ;  these  banks  have  no  capital  to  lend,  235. 

—  Resembles  the  old  system  in  liability  to  expand  and  contract;  fur- 
nishes a  standard  of  value  equally  delusive ;  raises  prices  and  creates 
speculation ;  extends  credit ;  increases  imports ;  counteracts  protec- 
tion, and  discourages  home  manufactures ;  will  continue  to  cause 
stringency  and  panic ;  guaranty  of  ultimate  redemption  no  security 
against  a  "  run,"  236.  — Development  of  the  new  system  ;  statistics  of 
the  national  banks,  237.  —  Large  incomes  of  these  institutions,  238.  — 
Effects  upon  the  business  of  the  country,  239. — New  system  better, 
because  more  susceptible  of  reform,  240. 

Chapter  XV. — Evidences  of  Debt.  —  Three  kinds  ;  book  accounts,  240. 

—  Ex  parte,  and  not  negotiable  ;  notes  ;  bills  of  exchange,  241. —  Il- 
lustrated; exchange,  foreign  and  domestic,  242. — Great  saving  of 
expense ;  indirect  exchange,  243.  —  Foreign  exchange  illustrated. 
244.  —  Saving  calculated  ;  indirect  foreign  exchange  illustrated : 
trade  of  United  States  1857,  245. — Natural  rate  of  exchange,  246. — 
Exchange  the  barometer  of  trade  ;  rate  of  British  exchange  explained ; 
value  of  the  pound  sterling,  247.  —  Expense  of  shipping  gold,  24S.  — 
Rectification  of  the  legal  value  of  pound  sterling ;  are  bills  of  ex- 
change currency?  do  not  pass  from  hand  to  hand,  249.  —  Are  them- 
selves discharged  by  currency  ;  are  generally  on  time  ;  not  proper 
tender;  if  dishonored,  do  not  reduce  amount  of  currency,  250.  — Do 
not  affect  prices ;  their  scarcity  cannot  create  panic,  therefore  not 
currency,  251. 


CONTENTS.  XXV 


BOOK  IV.— DISTRIBUTION. 

Chapter  I.  —  Divisions  of  the  Subject.  — Distribution  avisos  out  of  divi- 
sion of  labor,  252. — Labor,  physical,  mental,  and  subsidiary,  all 
receive  wages  ;  capital  loaned  in  two  forms,  one  receiving  interest,  the 
other  rent,  253.  —  Government  claims  a  share;  we  have  therefore  to 
provide  for  wages,  profit,  interest,  rent,  and  taxation. 

Chapter  II. — Wages.  —  Governed  bylaws  of  value;  vary  in  different 
countries  and  ages,  254. — Importance  of  freedom  and  equality  in 
securing  fair  wages;  necessary  wages,  255.  —  Wages  depend  on 
business  enterprise ;  distinction  between  real  and  nominal  wages ; 
illustrated,  256.  —  Facts  in  point,  257. 

Chapter  III.  —  Proportionate  Rise  and  Fall  of  Wages.  —  Do  not  rise 
so  soon  or  high  as  commodities  generally ;  reason,  no  speculative 
demand  ;  fall  sooner  ;  difficult  to  ascertain  rise  or  fall  of  real  wages  ; 
unquestionably  have  a  tendency  to  advance  ;  1810  compared  with 
1860,  259. — Difference  from  character  of  employments;  danger; 
disgrace,  260. —  Unhealthy  trades  ;  compensation  should  be  made ; 
agricultural  wages,  for  this  reason,  lowest  of  all,  261.  —  Education  of 
the  laborer ;  makes  him  more  efficient,  and  commands  a  reward  ;  fru- 
gality of  the  laborer ;  makes  him  independent,  262.  —  Neutralizes 
the  advantage  of  the  employer ;  distinction  of  sex  influences  wages ; 
rate  of  difference,  263. — Equality  of  numbers;  industrial  sphere  of 
woman  closely  circumscribed ;  her  products  more  dispensable ;  hence 
inferiority  of  compensation,  264.  —  Cannot  be  increased  by  mere  phil- 
anthropic efforts ;  change  must  be  effected  on  economic  principles ; 
her  occupations  must  be  increased,  265.  —  Another  classification  of 
wages,  paid  respectively  for  physical,  mental,  moral  power,  266.  — 
Gradation  of  wages  on  this  plan  ;  economical  importance  and  value  of 
integrity;  high  rewards,  267.  —  Objected,  confounds  moral  and  eco- 
nomical philosophy ;  answer,  they  do  meet,  and  this  ground  is 
common  to  both,  268. 

Chapter  IV.  —  Labor  Combinations.  —  Laborers  have  same  right 
to  combine  as  capitalists ;  friendly  associations  of  England,  269.  — 
Their  agency  ;  official  registration ;  moral  influence,  270.  —  Trades' 
unions  ;  lawful,  but  no  coercion  may  be  employed  within  or  without 
these  unions,  271.  —  Strikes  lawful  within  the  same  restrictions,  272. 


XXVI  CONTENTS. 

—  Do  not  permanently  raise  wages  ;  freedom,  intelligence,  and  virtue 
must  do  this,  273.  —  Co-operative  associations  ;  account  at  length  by 
Professor  Fawcett,  274. 

Chapter  V. — Profits.  —  The  remuneration  of  the  business  man,  279.  — 
Must  not  be  confounded  with  interest,  wages,  or  rent,  280.  —  The 
forms  may  be  united ;  freedom  necessary  to  secure  fair  profits,  281.  — 
Profits  of  capital  an  inaccurate  term,  282.  —  Rate  of  profit  tends  to 
decline,  from  acceleration  of  exchanges,  increasing  competition,  and 
more  rapid  intercourse  ;  difference  in  rate  of  profits  in  same  commu- 
nity, 283.  —  Rapidity  of  exchange  ;  its  effect  on  profit  illustrated,  284. 

—  Profits  large  in  new  countries  ;  Western  States  of  America  ;  prof- 
its governed  by  demand  and  supply,  285.  —  Tendency  to  reduce 
profits  further  discussed ;  effect  on  profit  of  temporary  rise  of  wages 
illustrated,  286.  —  Dividends,  how  classified  ?  287. 

Chapter  VI. — Interest.  —  Reward  of  circulating  capital;  justified  by 
right  of  property,  288.  —  By  human  wants  ;  interest  dependent  on 
productiveness  of  labor,  289. —  Governed  by  demand  and  supply  ;  abo- 
lition of  British  usmy  laws;  usury  laws  ineffective,  290.  —  Increase 
expense  of  borrowing,  by  danger  and  secrecy  of  transaction ;  create 
fictitious  exchange,  291. — 'Create  compulsory  deposits;  interest 
still  further  influenced  by  hazard  of  capital ;  this  depends  on  honesty 
and  thrift  of  a  people,  and  efficiency  of  laws  affecting  property ; 
interest  influenced  by  unsoundness  of  currency,  292.  —  Illustrations 
from  Europe  and  America ;  legal  rate  should  be  fixed  in  the  absence 
of  any  agreement,  293. 

Chapter  VII. —  Rent.  —  Reward  of  fixed  capital ;  not  of  great  impor- 
tance in  United  States ;    implies  ownership ;    implies  society,  294. 

—  Land  the  foundation  of  rent ;  does  not  appear  in  hunter  or 
shepherd  state;  begins  with  agriculture,  295.  —  Location  the  first 
element ;  rent  would  appear  though  there  were  enough  land  for  all, 
with  no  difference  of  quality ;  illustrated,  296.  — Fertility  the  second 
element;  illustrated,  297. — Cost  of  importation,  third  element; 
illustrated  from  Great  Britain ;  application  of  capital,  fourth  element ; 
not  proportionally  productive  in  all  cases,  298.  —  Great  extent  of 
European  improvements  ;  land  appendages  ;  do  not  sell  for  cost,  299. 

—  Reason,  difference  between  West  and  East,  300.  —  Improvements 
become  gratuitous ;  city  rents  generally  on  level  with  interest,  301. 

Chapter  VUI.—  Wages,  Bent,  Interest,  and  Profits,  as  relatively  af- 
fected by  Currency  Jnjlation.—'Sot  affected  in  equal  degree ;  wages  did 


CONTENTS.  XXV11 

not  rise  in  1864-5  as  prices  did,  302.  — Rents  advanced  little,  interest 
somewhat,  but  not  as  high  as  profits ;  state  of  things  illustrated,  303. 
—  The  laborer  loses  ;  the  business  man  gains,  but  not  so  greatly  as 
supposed;  is,  however,  the  only  party  who  gains  at  all,  304. — Ex- 
cept speculators  ;  loss  on  all  fixed  incomes,  305.  —  Facts  of  the  war 
hold  to  a  degree  in  all  expansions. 

Chapter  IX.  —  Principles  of  Taxation.  —  Necessity  of  government ;  it 
receives  revenue  ;  by  taxation,  306.  — Importation  in  United  States  ; 
must  be  just  and  equal  in  a  free  country,  307.  —  Government  own  a 
share  in  every  product,  has  a  lien  on  every  article  of  value  ;  principles 
of  taxation  propounded  by  Adam  Smith ;  first,  equality  of  contribu- 
tion, 308. — Explained  and  illustrated;  second,  taxation  must  be 
certain  and  plain,  309.  — Third,  convenience  of  payment  to  be  con- 
sidered ;  fourth,  economy ;  how  the  last  principle  may  be  violated ; 
by  great  machinery  of  collection,  310.  —  By  disturbing  industry;  by 
encouragement  to  smuggling  ;  by  interruptions  and  vexatious  visits  ; 
a  fifth  principle  proposed,  taxation  of  mischievous  consumption ; 
forms  of  American  taxation,  311.  —  National ;  State  ;  taxes  divided, 
as  direct  and  indirect,  312. 

Chapter  X. —  National  Taxation.  —  1 .  Customs  ;  duties  of  two  kinds, 
specific  and  ad  valorem;  American  policy  has  fluctuated,  312. — 
Specific  duties  unjust ;  ad  valorem  create  fraud,  and  so  far  defeat 
revenue,  313.  —  Customs  as  a  mode  of  taxation ;  easy  and  effective  ; 
a  tax  on  consumption  without  reference  to  ability,  therefore  unjust ; 
not  clear  and  plain  to  the  contributor,  314.  —  Moreover,  as  they 
raise  the  value  of  the  home  product,  government  gets  only  a  small 
part  of  what  the  people  pay;  illustrated,  315.  —  Example  of  taxa- 
tion laid  on  articles  not  of  home  production ;  customs  expensive 
on  account  of  the  machinery,  316.  —  Additional  estimates  showing 
expense  of  raising  revenue  by  customs,  317.  —  Bounties  preferable 
for  protection  to  customs,  318.  —  Excise  as  a  mode  of  taxation;  un- 
equal, like  customs ;  not  so  expensive  ;  more  vexatious,  319.  — Taxes 
on  disadvantageous  consumption ;  eminently  desirable ;  revenue  in 
Great  Britain  thus  obtained,  320. —  Stamps,  cheap,  efficient,  unequal ; 
licenses  desirable,  321. 

Chapter  XI. — National  Taxation  (continued). —  Income  tax;  only 
perfectly  just  principle ;  established  in  Great  Britain ;  in  United 
States,  322. — Should  be  no  exemptions  as  to  persons  or  amount; 
difficulties  alleged ;  people  do  not  know  their  income  ;  answer,  should 
know,  and  will  learn;  some  are  dishonest;  answer,  every  year  in- 


XXV111  CONTENTS. 

creases  difficulty  of  fraud;  should  be  put  on  oath,  323.  —  Do  not  like 
to  have  income  known;  answer,  all  are  copartners  in  taxation,  and 
the  contribution  of  each  ought  to  be  known;  income  deferred  must 
be  estimated,  324.  —  Taxation  of  exports  reduces  power  in  com- 
merce, e.g.  wheat,  325.  —  Effect  shown;  except  where  there  is  a 
virtual  monopoly  of  product,  326. —  This  we  have  in  cotton  ;  universal 
demand,  327. — Restricted  culture;  United  States  control  the  pro- 
duction ;  production  constantly  increasing ;  price  advancing  simulta- 
neously ;  yield  in  United  States  different  years,  328. —  Value  of  crop  ; 
limited  export  duty  would  not  curtail  the  market,  329.  — Amount  of 
revenue  yielded ;  cotton  capacity  of  United  States,  330. 

Chapter  XII. —  State  Taxation.  —  Is  direct ;  increased  by  rebellion  ; 
method  of;  false  position  of  poll-tax  payers,  in  regard  to  appropria- 
tions and  expenditures,  332. — Income-tax  would  remove  the  diffi- 
culty; poll-tax  unreasonable  in  itself,  but  tolerated  as  part  of  a 
system,  333. — Burden  thrown  on  property;  effect  on  small  farmers 
unjust  and  mischievous,  334.  —  Great  disparity  of  taxation ;  ad- 
vantages which  the  poll-tax  payer  derives  from  government,  335.  — 
Return  made  for  these ;  effect  of  State  and  national  system  com- 
bined ;  affect  each  other's  injustice,  336.  — Apportionment  of  national 
taxation  among  States  considered ;  cheaper,  if  the  States  could 
not  be  relied  on ;  taxation  of  credits  ;  propriety  has  been  questioned, 
337.  —  Matter  discussed;  this  liability,  being  known,  has  entered  as 
an  element  into  all  purchases,  338.  —  Income-tax  would  avoid  all 
injustice ;  as  it  is,  credit  should  be  taxed ;  taxation  of  government 
bonds;  importance  of  the  question,  339. — Proportion  of  national 
debt  to  estimated  wealth ;  large  amount  of  income  exempted ;  better 
pay  higher  interest,  349.  —  Such  exemption  diminishes  the  operation 
of  frugality ;  consolidation  of  national  debt ;  proposition  in  Congress, 
341.  —  Desirable,  but  no  exemption  from  taxation  should  be  allowed ; 
such  exemption  separates  the  rights  of  voters  from  their  responsibili- 
ties ;  creates  a  mischievous  class,  342.  —  Unjust  for  national  authority 
to  limit,  in  this  way,  the  control  of  State  and  town  authorities  over 
property ;  creates  inequality ;  will  create  an  interest  against  the  pay- 
ment of  the  debt,  involving  endless  taxation ;  particularly  unjust  to 
certain  sections,  343. — Absorbs  too  large  a  proportion  of  the  wealth 
into  the  debt,  as  our  bonds  will  be  returned  in  consequence  from 
Europe  ;  entirely  unnecessary  now  ;  never  was  good  policy  ;  wisdom 
of  British  financiers  in  Napoleonic  wars,  344.  —  If  wisely  managed, 
our  debt  need  not  burden  the  country  excessively ;  a  consolidation 
should  be  effected,  but  not  in  a  single  issue ;  proposed  sinking  fund 
considered,  345. 


CONTENTS.  XXIX 

Chapter  XTTT. — Foreign  Indebtedness.  —  1st,  Economy  of  foreign  in- 
debtedness ;  of  four  kinds,  individual,  corporate ;  these  may  be 
enforced  by  law,  are  of  great  extent ;  State,  346.  —  National ;  no 
legal  remedy  for  these ;  amount  already  sent  abroad ;  2d,  exporta- 
tion of  public  stocks  considered ;  desirableness  depends  on  return 
made,  347.  —  Exporting  stocks  regarded  as  extending  mercantile 
indebtedness ;  the  return  will  depend  much  on  condition  of  the 
currency,  348. — Disadvantage  at  which  stocks  are  now  exported ; 
tariff  will  not  help  it,  349.  —  The  remedy  should  be  applied  to  the 
currency  ;  rapid  depletion  of  the  United  States  ;  objection  to  foreign 
indebtedness ;  debtor  cannot  choose  his  creditor,  350.  —  Makes  no 
difference  who  the  creditor  is  ;  we  should  be  glad  to  have  the  use  of 
foreign  capital ;  errors  of  financial  management  during  the  rebellion  ; 
wisdom  of  the  Confederate  loan,  351. —  Our  debt  can  be  cheaply 
negotiated  abroad,  if  rightly  put  out;  can  make  no  operations  advan- 
tageously under  an  expanded  currency ;  indefinite  fear  that  foreign 
indebtedness  endangers  a  nation,  352.  —  The  danger  is  to  the  party 
owning,  not  the  party  owing,  the  debt ;  no  evil  can  arise  from  this 
source ;  fallacies  respecting  a  national  debt ;  Mr.  Jay  Cooke's  first 
proposition,  353.  —  If  "  our  debt  is  so  much  added  to  our  wealth," 
the  war  was  a  financial  blessing ;  nobody  is  richer,  the  govern- 
ment is  three  billions  poorer ;  the  wealth  which  the  debt  represents 
has  been  spent  in  war,  354. — If  debt  is  wealth,  repudiation  would 
destroy  wealth;  not  so;  again,  "  debt  is  active  capital;"  govern- 
ment debt,  like  individual,  can  be  hypothecated  to  obtain  capital,  355. 
—  Again,  it  "  gives  stability  to  government; "  government  depends  on 
the  satisfaction  of  the  people ;  France  has  large  debt,  yet  undergoes 
repeated  and  violent  changes  ;  but  "  every  government  creditor  is  in- 
terested in  the  stability  of  the  nation ; "  who  holds  the  debt  ?  not  one 
citizen  in  fifty  holds  enough  stock  to  make  his  interest  from  it  so  large 
as  the  taxation  it  imposes,  357.  — Illustrated,  358.  —  The  debt  will  be 
a  source  of  discord  and  faction  ;  again,  "  it  insures  protection  to  home 
industry,"  359.  —  England  has  a  large  debt,  and  has  repudiated  pro- 
tection ;  again,  "  it  is  a  desirable  basis  for  banking  ; "  debt  is  no  basis 
for  sound  banking;  again,  "the  generation  contracting  is  under  no 
obligation  to  pay ; "  this  simply  enslaves  posterity,  360. —  But  nations 
must  sometimes  create  debts;"  very  rarely,  361.  —  Ours  should  be 
paid  within  the  century,  362. 

Chapter  XTV. —  Rise  and  Growth  of  the  Modem  Financial  System.  — 
no  large  national  debt  ever  paid  ;  William  III.  of  England  author  of 
modern  system  ;  his  war  with  France,  363.  —  Disadvantages  of  former 
kings  of  England;  William  established  a  regular  scheme  of  borrow- 


XXX  CONTENTS. 

ing ;  incorporated  Bank  of  England  to  manage  the  debt ;  established 
land-tax,  364. —  Also  indirect  taxation;  results  of  the  new  system; 
unlimited  credit ;  all  check  on  war  expenditures  removed,  taxation 
transferred  to  the  poor ;  the  aristocracy  conciliated,  365.  —  Progress 
of  British  national  debt,  366. — Diagram  of  the  British  national  debt; 
the  bank  grows  up  with  it,  367.  —  Advantages  and  mischiefs  of  indi- 
rect taxation,  368.  — Fruit  of  this  policy;  extension  of  war  system  ; 
increasing  indebtedness  all  over  the  civilized  world ;  impoverishment 
of  the  masses ;  such  a  debt  throws  taxation  on  the  productive  classes, 
371.  —  Altered  condition  of  the  United  States,  371. 

Chapter  XV.  —  On  the  Laws  of  Inheritance  and  Bequest.  —  To  whom 
does  the  world  belong,  the  living  or  the  dead?  371.  — It  is  a  concern 
of  government ;  Mr.  McCulloch's  argument ;  the  world  belongs  to 
the  living,  372. —  Laws  entailing  property  established  in  certain  coun- 
tries, 373.  —  Wealth  tends  to  pass  out  of  the  hands  of  a  family  or 
class,  374.  —  This  liability  of  the  rich  is  the  property  of  the  poor ; 
to  contravene  it  by  law  is  to  rob  them  ;  the  laws  of  primogeniture  and 
entail ;  their  rightfulness ;  subsistence  secured  to  man  only  in  his 
powers  of  industrial  appropriation,  375.  —  Analogy  of  nature  ;  defeat 
his  right  to  appropriate  by  making  property  inalienable,  and  you  de- 
prive him  of  subsistence,  376.  —  Expediency  of  such  laws  ;  entailed 
estates  generally  too  large  for  economic  well-being ;  monopoly  of 
wealth  and  monopoly  of  wives,  377.  —  Diminish  the  industrial  de- 
sires ;  draw  off  wealth  to  luxury,  378.  —  Come  to  men  incompetent 
to  administer  them,  379. 


BOOK  V.  — CONSUMPTION. 

Chapter  I. — Divisions  of  the  Subject. — Destruction  of  wealth  not  a 
subject  for  science;  consumption  the  use  of  wealth,  380.  —  Illus- 
trated, 381.  —  Upon  consumption  depends  reproduction;  the  acts  of 
consumption  often  cannot  be  defined  or  even  detected,  382.  —  Not 
the  less  real ;  relations  of  production,  exchange,  distribution,  and 
consumption  illustrated;  consumption  divided  as  mistaken,  luxuri- 
ous, public,  and  reproductive. 

Chapter  n. — Mistaken  Consumption.  —  Capital  applied  for  reproduc- 
tion without  result ;  frequent  failures  of  industrial  enterprises,  383. 
—  Secondary  uses   of  such  failures,  i.e.   railroads,    factories,   &c, 


CONTENTS.  XXxi 

884.  —  Large  proportion  of  industrial  misadventures ;  why  ?  capital 
fallible ;  extravagance  in  outlay ;  great  accidents  or  developments, 
385.  —  Wealth  unproductively  applied  is  not  capital ;  is  waste  or 
luxury,  386. 

Chapter  III. — Luxurious  Consumption.  —  What  is  luxury?  386. — 
General  foi'mula ;  standard  varies  with  classes,  countries,  and  ages, 
387. — Direction  varies  with  individual  taste;  do  luxuries  directly 
encourage  industry?  illustration,  388.  —  Encourages  one  class  to 
discourage  another;  capital  thus  spent  pays  less  wages  than  that 
employed  reproductively,  389.  —  Do  they  indirectly  encourage  indus- 
try ?  the  desire  to  spend  is  the  origin  of  the  desire  to  gain ;  great 
economic  importance  of  this ;  this  influence  of  luxuries  increased  by 
their  general  diffusion,  390.  —  Only  temperate  and  harmonious  con- 
sumption of  wealth  in  luxury  encourages  industry ;  place  of  morality, 
391. 

Chapter  IV.  —  On  the  Degree  of  Luxurious  Consumption.  —  Luxuries 
not  confined  to  the  rich;  an  extent  of  necessary  wages,  392. — 
French  and  English  workmen  compared ;  popularization  of  luxuries, 
393. — Relative  consumption  in  luxury  by  different  classes  in  Great 
Britain;  historical  examples  of  luxury,  394.  —  The  causes  of  luxu- 
rious consumption,  a  surplus,  preponderance  of  desire  to  spend  over 
desire  to  gain ;  this  influenced  by  security  and  profitableness  of  capi- 
tal ;  extent  to  which  luxury  can  be  carried ;  Gibbon's  theory,  395.  — 
Modifications  of  this  ;  no  certain  proportion  for  all  nations  ;  idleness 
as  a  luxury,  396.  —  Of  learning  and  art ;  have  value ;  their  price 
varies,  897.  —  Quantity  of  labor  bestowed  on  them  governed  by  sup- 
ply and  demand :  effect  of  such  consumption,  398.  —  Sunnituary 
laws;  supported  by  urgent  reasons,  399.  —  Found  impracticable; 
causes,  400. — Violations  not  easily  proved;  against  human  nature; 
laws  in  the  interest  of  morality  should  be  sustained,  401. 

Chapter  V.  —  Public  Consumption. — Economical  reason  for  govern- 
ment, 401. — Right  to  participate  in  consumption ;  share  ?  402. — 
Government  should  take  nothing  from  individual  enterprise ;  anec- 
dote, 403. —  Government  should  do  nothing  for  display;  historical 
instances  of  frugality ;  progress  in  this  direction ;  expense  of  gov- 
ernment varies  with  circumstances  and  character,  404.  —  Expendi- 
tures of  European  nations;  of  United  States,  405. — Does  public 
consumption  encourage  industry  ?  if  unnecessary,  it  is  only  charity, 
requiring  great  expense  beyond  the  help  given  to  the  poor,  406.  — 
saves  self-respect,  entails  burden  on  the  future ;   if  necessary,  public 


XXX11  CONTENTS. 

does  not  get  full  value  of  the  outlay,  407.  —  Government  never 
operates  successfully ;  some  duties  must  be  undertaken  directly  by 
government;  these  occasions  few  and  definite,  408.  —  Disadvantages 
of  government  consumption  ;  seldom  needed  by  the  people  ;  perpet- 
uates dependence  ;  demoralizes  industry  ;  induces  political  corruption, 
409.  —  If  government  expends  at  disadvantage  when  necessary,  it 
should  not  go  beyond  its  strict  occasions ;  expenditures  of  United 
States  in  recent  war  not  economically  advantageous,  410. 

Chapter  VI.  —  Charity  and  Poor-Laics.  —  Field  of  this  agency  ; 
restricted  by  family  relation,  411.  —  Constituents  of  the  class 
needing  support;  statistics  of  pauperism,  412.  —  Not  very  impor- 
tant in  United  States ;  what  classes  entitled  to  charity  ?  all  who 
require  it ;  the  vicious  ?  Roman  cruelty ;  Christian  law,  413.  — 
Who  should  administer  charity ;  may  be  most  judiciously  and 
economically  done  by  private  hands,  414.  —  Mutual -relief  soci- 
eties another  and  advantageous  mode  of  charity;  such  agencies 
extensive  in  Europe  and  the  United  States,  415.  —  Christian 
scheme  of  the  Quakers  or  Friends,  415. — All  these  methods 
insufficient,  and  the  State  must  engage  in  the  work,  415. — By  what 
branches  of  the  government ;  to  what  extent ;  two  English  methods  ; 
allotment  of  land  and  parish  allowance,  416.  —  Failure  of  this  sys- 
tem ;  to  what  extent  poor-laws  may  be  effective,  417.  —  Able-bodied 
workmen  as  paupers,  418. — Pauperism  of  England,  418.  —  In  what 
form  should  charity  be  administered?  418,419.  —  How  government 
should  furnish  charitable  assistance,  420.  —  In  what  spirit  charity 
should  be  dispensed,  421. 

Chapter  VII.  —  The  Finance  of  War,  422.  — Fallacy  that  more  money 
is  wanted  in  time  of  war  than  in  peace  ;  evil  effects  of  this ;  govern- 
ment becomes  the  greater  operator  in  war,  and  changes  the 
direction  of  industry,  but  does  not  increase  production ;  war  a 
business  as  truly  as  agriculture,  and  needs  similar  resources, 
materials,  provisions,  and  services,  422.  —  "Raising  money"  no 
more  necessary  in  time  of  war  than  peace,  423.  —  Except  for  obtain- 
ing foreign  assistance. 

Chapter  VIII. — Economy  of  the  War  System,  425.  — War  the  greatest 
fact  in  public  consumption ;  not  accidental ;  consisting  of  (1)  a  per- 
manent military  and  naval  force  ;  (2)  constant  preparations  ;  (3)  large 
national  indebtedness;  British  statistics  in  proof,  426.  —  Statistics 
of  European  armies;  muster  roll  of  the  British  army,  427.  —  State- 
ment of  national  debt  of  each  European  power,  428.  —  Small  pro- 


CONTENTS.  XXX111 

portionate  amount  required  for  civil  service  in  Great  Britain,  428.  — 
Rapid  increase  of  war  expenditures ;  statement  of  Mr.  Gladstone,  429. 
— War  expenditures  must  be  greatly  increased  by  the  revolution  in 
naval  warfare  inaugurated  in  the  United  States  during  the  Rebellion ; 
the  "Merrimack"  and  "Monitor,"  430. — Questions  whether  new  and 
improved  ideas  of  international  intercourse  are  not  quite  as  desirable 
as  new  engines  of  human  destruction,  431.  —  Condition  of  the  United 
States,  431.  —  Modern  war  debts  will  never  be  paid  until  the  war 
policy  of  nations  is  changed,  432.  — Is  war  a  moral  necessity?  would 
not  the  same  common  sense  that  establishes  courts  of  justice  for 
individuals,  establish  a  similar  institution  for  the  settlement  of  inter- 
national disputes?  432.  —  Folly  of  rival  armaments,  433.  —  Changes 
in  war  armament,  434. — Influences  adverse  to  war;  (c)  commerce; 
(6)  increasing  intercourse  ;  (c)  education  of  the  masses  ;  (d)  example 
of  the  neutralization  of  the  American  lakes  and  the  Black  Sea,  435. 
—  A  congress  of  nations  probable,  436.  —  Motion  of  Mr.  Cobden  in 
House  of  Commons ;  Lord  Palmerston's  declaration ;  the  French 
emperor's  proposal;  declined  only  by  Great  Britain,  437. — Reply 
of  Emperor  of  Russia,  King  of  Prussia,  and  other  monarchs,  438.  — 
The  public  press  in  favor  of  disarmament,  438  and  439.-  -The 
question  rests  with  Great  Britain,  France,  and  the  United  States,  440 

Chapter  FX. — Economy  of  Public  Education. — Objection  to  compul- 
sory education  in  England  not  appreciated  in  the  United  States, 
440.  —  Economic  results  of  education ;  (1)  prevents  pauperism  and 
crime  ;  (2)  creates  higher  economical  condition,  441.  —  Scotland  and 
the  United  States  as  illustrations,  442.  —  Secures  more  uniform  dis- 
tribution, 4-13. 

Chapter  X.  —  Reproductive  Consumption. — Its  character  and  origin; 
necessity  for  the  use  of  reproductive  capital,  444. — Importance  of 
frugality,  445. — What  amount  of  reproductive  consumption  indis- 
pensable ;  (1)  capital  must  support  labor,  446.  —  Capital  must  provide 
for  the  increase  of  population;  must  supply  its  own  wants,  447. — 
Must  support  government,  448. — What  amount  of  reproductive  con- 
sumption is  desirable?  448. — Little  occasion  to  ask  this  question  in 
a  normal  state  of  society,  449.  — The  degree  somewhat  determined  by 
geographical  position  and  political  relations,  &c,  450.  —  Desires  to 
spend  unequally  developed  in  different  communities,  451. 

Chapter  XL — Population.  —  Reference  to  the  theory  of  Malthus, 
his  two  postulates,  452. — Three  fallacies;  (1)  as  to  subsistence; 
(2)  as  to  propagation,  453.  —  (3)  The  supposed  necessary  relation 


XXXIV  CONTENTS. 

of  distress  to  these  postulates,  456.  —  Reference  to  English  pauperism, 
457.  —  Causes  that  limit  population,  458-460. — Misgovernment  and 
war;  self-restraint  and  social  influences,  461.  —  Differences  in  the 
increase  of  the  native  and  foreign  population ;  how  accounted  for ; 
(1)  emigrants  mostly  young  persons,  462.  —  (2)  Engage  in  more 
healthy  employments  ;  (3)  but,  principally,  are  far  less  influenced  by 
prudential  considerations  ;  American  and  foreign  marriages  in  Massa- 
chusetts, 463.  —  Comparison  of  deaths  in  same  population,  note,  463. 
—  Reflections  upon  the  facts  given,  464. 

Chapter  XII.  —  Importance  of  a  Right  Consumption.  —  The  moral  and 
social  interest  that  attaches  to  the  wealth,  attaches  to  its  use,  465.  — 
What  a  right  consumption  would  bring,  465.  —  Wealth  has  its  genera- 
tions, 466.  —  No  natural  obstacles  to  its  constant  increase  and  the 
general  amelioration  of  the  condition  of  mankind,  467.  — Illustration 
of  a  wrong  and  right  use  of  wealth,  467.  —  The  science  of  wealth  not 
complete  which  does  not  embrace  moral  considerations,  468.  — What 
is  the  economic  good  ?  the  question  answered,  469,  470. 


THE     SCIENCE     OF    WEALTH 


A  MANUAL   OF  POLITICAL  ECONOMY. 


POLITICAL   ECONOMY. 


BOOK  I. 

DEFINITIONS. 


CHAPTER  I. 

CHARACTER     OP    THE     SCIENCE. 

Political  Economy  is  the  Science  of  Wealth,  and  pro 
fesses  to  teach  the  laws  by  which  the  production  and  con- 
sumption of  wealth  are  governed. 

The  term,  "  political  economy,"  is  not  a  fortunate  one, 
since  it  leads  the  popular  mind  to  a  misapprehension  of 
what  the  science  actually  teaches,  and  confounds  it  with 
politics,  or  the  science  of  government,  from  which  it  is 
distinct. 

The  relations  into  which  these  sciences  enter  are  volun- 
tary, and  for  the  supposed  advantage  of  both,  not  from  any 
logical  necessity  to  complete  either.  A  just  and  efficient 
government  of  the  state  is  important  to  realize  the  largest 
development  of  wealth,  but  only  as  a  condition  under  which 
the  laws  of  wealth,  already  complete  and  harmonious,  may 
have  their  own  proper  sway. 

Government  cannot  furnish  a  new  power  in  man,  or  a 
new  agency  in  nature.  It  can,  to  a  certain  extent,  control 
the  exercise  of  existing  power,  and  the  use  of  existing 
agencies  ;  but  it  can  control  only  by  limiting  them.  Noth- 
ing is  added  through  legislation.     The  science  of  wealth  is 

l  in 


2  DEFINITIONS.  [BOOK  I. 

complete  in  its  own  principles,  though  the  statesman  may 
think  it  policy  to  contravene  them  for  a  supposed  good. 
Political  economy  is,  then,  silent  before  the  law. 

The  science  of  wealth  would  he  no  less  complete  and  cer- 
tain, should  the  action  of  government  render  the  creation 
or  possession  of  wealth  impossible.  The  science  would  vin- 
dicate itself  by  saying,  that,  when  wealth  is  created,  it  must 
be  as  my  laws  determine.  The  independence  of  these 
sciences  does  not  imply  that  they  are  indifferent  to  each 
other.  The  statesman  must  consult  the  economist  at  every 
step,  if  he  would  use  the  powers  of  government  to  national 
advantage,  and  legislate  in  accordance  with  the  natural 
laws  of  wealth,  and  to  the  advancement  of  the  national  in- 
dustry. It  is  not  intended  here  to  enforce  this  as  a  duty, 
but  to  show,  by  these  remarks,  the  relation  of  the  statesman 
to  the  science  we  are  to  investigate. 

Political  economy  teaches  the  relation  of  man  to  those 
objects  of  his  desire  which  he  can  obtain  only  by  his  efforts. 
He  has  wants :  he  needs  food,  clothing,  and  shelter ;  he 
wishes  many  things  not  vital  to  him.  Together,  these  con- 
stitute his  wants,  in  the  view  of  political  economy.  This  is 
the  first  fact  of  the  science.  It  is  the  foundation  of  all. 
These  wants  can  only  be  satisfied  by  efforts.  This  is  the 
second  fact.  By  it,  man  builds  on  the  foundation  laid  in 
his  wants.  The  objects  or  satisfactions  obtained  by  these 
efforts  are  collectively  called  wealth,  or  those  things  which 
contribute  to  the  welfare  of  man.  This  is  the  third  fact  to 
be  noticed.  The  circle  of  political  economy  is  here  com- 
pleted. It  may  hereafter  appear  that  there  is  a  perpetual 
progress,  an  unceasing  self-multiplication ;  that  each  satis- 
faction creates  a  new  want,  which  in  turn  seeks  its  object 
through  an  effort. 

Let  us  make  a  formal  statement  of  what  we  have  ob- 
tained :  — 

Wants,     Efforts,   Satisfactions  ;    or, 
Desires,  Labor,      Wealth. 


CHAP.  I.]  CHARACTER   OF  THE   SCIENCE.  3 

The  wants  of  man,  in  which  are  all  the  springs  of  wealth, 
are  various,  and  change  their  place  and  form  with  times  and 
circumstances.  But  they  arise  from  his  nature.  They  are 
a  certain  and  constantly  operating  force.  They  commence 
with  man's  existence,  and  terminate  only  with  his  life: 
and,  when  all  the  desires  of  the  individual  are  satisfied  in 
the  grave,  and  his  labor  paralyzed,  the  wealth  he  lays  down 
in  death  becomes  the  possession  of  other  men,  with  full 
strength  and  fresh  desires ;  and  so  the  creation  of  wealth 
goes  on  in  ever-increasing  circles,  expanded  by  the  central 
force, — the  wants  of  man.  While  the  individual  awakens 
but  slowly  to  the  consciousness  of  his  needs,  gradually 
exhausts  his  activity  in  supplying  them,  and  finally  resigns 
all  as  he  passes  from  life,  we  find  that  the  sum  of  such 
wants  and  energies  experiences  no  diminution  by  an  atom, 
no  suspension  for  an  instant.  Differing  as  these  do  in  the 
individual,  they  are,  in  the  world,  as  well  ascertained  and 
determinate  as  the  facts  on  which  any  other  science  rests. 

While  the  one  element  of  wants  or  desires  is  secured  in 
the  constitution  of  man's  being,  the  other  clement  —  viz., 
the  relation  of  effort  or  labor  to  them  —  is  fixed  in  the  con- 
stancy of  nature,  and  the  permanence  we  attribute  to  the 
created  world,  —  a  foundation  sure  enough  to  build  upon. 

If,  on  the  one  hand,  man's  being  were  so  constituted  that 
his  wants  should  cease,  or  be  intermitted  without  any  reason 
at  the  time,  and  without  any  assurance  of  return,  or  prove 
too  weak  to  move  the  activities  towards  their  satisfaction  ; 
or,  on  the  other,  nature  were  so  disposed  that  labor  had  no 
guaranty  of  reward,  resulting  indifferently  in  good  to  the 
laborer,  or  in  nothingness,  or  in  positive  injury  to  him 
who  performs  it, — we  could  have  no  science  (f  political 
economy. 

But,  as  man's  being  and  nature's  laws  are  found  in  expe- 
rience, political  economy  is  to  be  regarded  as  a  positive  sci- 
ence. Nothing  in  its  fundamental  principles  is  hypothetical 
or  problematic.     None  of  its  methods  are  whimsical  or  acci- 


4  DEFINITIONS.  [BOOK  I. 

dental.  Each  thing  is  susceptible  of  clear  demonstration. 
All  its  parts  are  calculable. 

"Political  economy  plainly  belongs  to  the  same  class  of 
sciences  with  mechanics,  astronomy,  optics,  chemistry,  elec- 
tricity, and,  in  general,  all  those  physical  sciences  which 
have  reached  the  inductive  stage.  Its  premises  are  not 
arbitrary  figments  of  the  mind,  formed  without  reference  to 
concrete  existences,  like  those  of  mathematics ;  nor  are  its 
conclusions  mere  generalized  statements  of  observed  facts, 
like  those  of  the  purely  inductive  natural  sciences."* 

In  his  efforts  to  supply  his  wants,  we  have  said,  man 
avails  himself  of  the  powers  of  nature,  the  fertility  of  the 
earth,  the  stimulating  quality  of  the  sun's  rays,  the  agencies 
of  wind,  water,  and  steam, — all  the  dynamical  forces  and 
mechanical  supports  at  his  hand.  He  must,  therefore,  recog- 
nize these,  and  know  the  laws  by  which  they  are  governed. 
But  such  inquiries  do  not  come  within  the  field  of  the  polit- 
ical economist.  He  takes  them  from  the  hands  of  the 
physical  philosopher,  furnished  to  his  own  use. 

Let  us  say,  then,  that  human  nature  in  its  wants,  the 
physical  laws  which  supply  them,  and  the  statistics  of  hu- 
man industry  in  all  its  manifestations,  are  the  material  of 
our  science. 

Political  economy  is  a  science  whose  laws  may  be  dis- 
turbed in  their  operation,  or  made  perplexing  to  observa- 
tion, by  the  legislation  of  the  state.  No  enactment  could 
affect  the  movements  of  the  planets,  nor  could  the  utmost 
tyranny  of  his  age  obscure  the  eye  of  the  philosopher  who 
looked  on  the  revolution  of  the  earth.  So  far  as  political 
economy,  as  a  science,  is  physical,  depending  on  the  forces 
and  agencies  of  nature,  it  is  above  legislation.  So  far  as  it 
is  moral-,  depending  on  human  nature,  it  can  be  hindered  or 
deflected  by  laws  not  its  own.  The  desires  of  man  may  be 
influenced  by  enactments,  not  made  to  cease,  not  brought 
into  being ;  for  they  are  all  in  his  nature :   they  have  been 

*  Logical  Method  of  Political  Economy,  by  Professor  Cairnes,  p.  38. 


CHAP.  I.]  CHARACTER   OF   THE   SCIENCE.  5 

created,  and  they  are  indestructible.  But  the  force  of  the 
state,  while  it  is  impotent  to  present  man  with  a  single  new 
motive,  or  to  erase  one  from  his  mind,  can  yet  modify  and 
control  what  already  exist.  Practically,  this  is  the  great  dis- 
turbing force  which  political  economy  has  encountered  in  all 
the  past.  Wealth  is  the  constant  subject  of  legislation  often 
in  direct  antagonism  to  its  own  laws. 

The  express  purpose  of  much  legislation  has  been  to 
reform  human  morals  by  an  external  pressure  on  man's  de- 
sires, or,  at  least,  to  reform  human  manners  by  denying  all 
gratification  of  such  desires ;  and  this,  not  in  the  interest 
of  religion,  or  for  the  safety  of  the  state,  but  in  matters  of 
dress  and  equipage.  Other  legislation  has  sought  to  supply 
supposed  deficiencies  in  human  intelligence,  and  has  substi- 
tuted blind  laws  for  the  keen  sight  of  personal  interest 
and  business  experience.  Institutions  have  been  created,  or 
have  grown  up,  whose  actual  effect  at  the  present  time,  if 
not  their  avowed  design,  is  to  counteract  the  operation  of 
the  natural  laws  of  wealth ;  and  with  these  institutions  vast 
interests  have  become  allied  in  such  a  manner  as  to  influence 
the  material  welfare  of  a  great  portion  of  the  people.  Hence 
the  laws  of  political  economy  are  not  only  contravened  by 
direct  legislation,  but  are  obstructed  or  perverted  in  many 
ways  by  false  social  and  political  opinions. 

It  will  be  easily  recognized  as  a  part  of  that  human  na- 
ture of  which  we  have  spoken,  that  the  promulgation  of 
principles  whose  legitimate  operation  threatens  the  over- 
throw of  long-established  abuses,  or  which  interfere  with 
existing  customs,  should  excite  prejudice  and  opposition. 
This  is  one  of  the  chief  difficulties  the  science  has  had  to 
encounter  from  the  first.  Here  we  have  the  reason  why  it 
has  made  comparatively  little  progress,  and  is  the  only  sci- 
ence that  cannot  obtain  a  candid  and  impartial  examination 
from  the  mass  of  mankind.  It  is  a  long  time  since  chem- 
istry was  considered  a  diabolical  art,  since  geology  and 
archaeology  were  excommunicated  as  infidel,  since  the  doc- 


6  DEFINITIONS.  [BOOK  I. 

trine  of  gravitation  was  an  offence  in  the  nostrils  of  the 
Church  ;  but  prejudices  and  ignorance  and  partial  interests 
never  opposed  economical  truths  more  vehemently  than  to- 
day. 

"  A  science  that  comes  in  contact  with  the  interests  of 
men,  which  lies  in  the  region  of  daily  action  and  desire, 
will  find  its  theories  more  frequently  questioned,  and  its 
proofs  more  severely  tried,  than  one  which  has  to  do  with 
the  relations  of  abstract  ideas,  or  the  facts  of  the  external 
world.  Political  economy  is  not  a  science  varying  with 
climate  and  country.  There  is  not  an  English  and  an 
American  political  economy  distinct  from  each  other,  and, 
in  a  measure,  the  reverse  of  each  other.  The  forces  of  hu- 
man nature,  the  agents  of  production,  the  arithmetic  of 
gains,  arc  the  same  everywhere,  and  lead  to  the  same  prin- 
ciples of  economic  action." — Bascom's  Political  Economy. 

Of  the  advantage  of  a  knowledge  of  political  economy,  the 
same  writer  thus  speaks :  "  The  knowledge  which  it  imparts 
is  of  an  important  and — if  we  choose  to  make  that  the  test 
—  of  a  most  practical  character.  Wealth  underlies  all  civi- 
lization, and  ultimately,  therefore,  in  a  large  measure,  both 
knowledge  and  religion.  It  is  among  the  lowest,  but  also 
the  first,  steps  to  social  worth  and  national  strength.  We 
are  not  to  value  wealth  for  that  which  it  is  in  itself,  but  for 
that  to  which  it  can  be  made  to  minister.  In  its  retinue 
come,  or  rather  may  come,  all  intellectual,  social,  and  reli- 
gious advantages." 


CHAPTER  n. 

DEFINITION     OF    WEALTH. 


Having  now  given  the  three  great  facts  on  which  the  sci- 
ence is  founded,  it  becomes  necessary  to  fix  precisely  the 
terms  to  be  used  in  the  further  development  of  these 
inquiries.     Political  economy  is  unlike  all  other  sciences  in 


CHAP.  II.]  DEFINITION   OP  WEALTH.  7 

this,  that  it  has  not  the  option  of  making  or  choosing  its 
own  terms.  From  the  nature  of  the  case,  it  is  obliged  to 
adopt  words  in  common  use.  It  is  encumbered  with  all  the 
notions,  false  or  loose,  which  may  have  been  attached  to 
these.  It  has  to  speak  of  wealth  ;  of  value  and  utility ;  of 
labor  and  capital ;  of  production,  exchange,  distribution,  and 
consumption.  These  are  common  phrases.  Each  has  a 
variety  of  meanings  in  popular  language ;  yet,  when  used  in 
the  discussion  of  this  science,  it  must  have  one  meaning  as 
definite,  exclusive,  and  precise  as  the  terms  of  natural  his- 
tory. The  liability  to  confusion  from  this  source  can  only 
be  guarded  against  by  being  kept  constantly  in  mind. 
Until  the  proper  definitions  become  instinctive,  so  that  they 
arise  freely  in  their  own  shapes  on  the  mention  of  such 
terms,  there  will  be  a  constant  slipping  back,  as  it  were,  to 
their  habitual  meanings  in  common  life.  At  the  best,  the 
laborious  reference  of  the  mind  to  formal  definitions  will 
tend  to  diminish  the  force  of  all  representations  and  argu- 
ments where  they  appear.  The  greatest  obstacle,  however, 
encountered  by  writers,  is  not  that  arising  through  popular 
prepossessions  in  regard  to  words  ;  but  it  is  their  own  mis- 
application.  of  language,  confounding  things  essentially  dis- 
tinct, and  clothing  exact  principles  in  expressions  so  vague 
and  indeterminate  as  to  make  science  impossible. 

We  have  said  that  political  economy  treats  of  wealth ; 
but  what  is  wealth  ?  In  popular  language,  it  is  houses, 
lands,  ships,  merchandise,  with  a  general  "and  so  forth,"  — 
all  that  we  call  property.  In  science,  the  term  "wealth" 
includes  all  objects  of  value,  and  no  other. 

A  discussion  of  its  principles  will  be  satisfactory  only  so 
far  as  the  explicitness  and  exclusiveness  of  this  term  is  held 
in  view.  No  apology  is  to  be  given  for  the  definition,  and 
no  substitute  offered.  The  least  deviation  from  this  line 
will  lead  to  ceaseless  entanglements  and  perplexities. 

The  principle  is  cardinal.     The  science  turns  on  it. 

Political  economy  has  been  called  the  "  science  of  values." 


8  DEFINITIONS.  [BOOK  I. 

No  definition  could  be  more  strictly  accurate ;  but  we  shall 
retain  that  already  given,  as  being  more  popular,  and  as 
nearer  to  the  customary  use  of  the  words.  It  is,  then,  the 
science  of  wealth,  understanding  that  wealth  consists  of 
objects  of  value  only. 


CHAPTER  III. 

DEFINITION     OF     VALUE. 

What,  then,  is  value  ?    When  does  an  article  or  commodity 
possess  value  ? 

When  it  is  an  object  of  man's  desire,  and  can  be  obtained 
only  by  man's  efforts.  Any  thing  upon  which  these  two  con- 
ditions unite  will  have  value  ;  that  is,  a  power  in  exchange. 
Value  is  the  exchange  power  which  one  commodity  or 
service  has  in  relation  to  another. 

That  such  a  power  does  exist,  is  not  a  matter  of  dispute. 
Its  influence  is  felt  and  acknowledged  in  every  Country, 
civilized  or  savage.  This  it  is  which  excites  to  industry, 
creates  commerce,  and  supports  government.  This  power 
obeys  laws  as  certain  and  immutable  as  those  which  apper- 
tain to  any  of  the  great  forces  of  nature.  Just  as  man  is 
sure  to  feel  wants,  to  put  forth  efforts,  to  realize  satisfac- 
tions ;  so  he  is  sure  to  be  found  exchanging  an  excess  for  a 
novelty,  a  home  product  for  that  which  comes  from  abroad, 
the  work  of  his  mind  for  the  work  of  another's  body. 

Again  let  us  remark,  that  the  term  "  value  "  always  ex- 
presses precisely  power  in  exchange,  and  no  other  power  or 
fact.  Desirableness  is  not  value.  Utility  is  not  value.  No 
objects  are  more  useful  and  desirable  than  atmospheric  air, 
the  light  of  day,  the  heat  of  the  sun ;  yet  these  have  no  value. 
They  will  exchange  for  nothing,  because  any  one  may  have 
all  he  wishes  without  effort. 


CHAP.  III.]  DEFINITION   OF  VALUE.  9 

An  object,  to  possess  value,  must  be  desired  by  some  one 
who  is  willing  to  render  a  service  or  equivalent  in  order  to 
obtain  it,  for  the  reason  that  he  cannot  have  it  without.  It 
is  what  a  man  gets,  what  another  will  give,  that  determines 
value.  The  use  of  this  term,  in  its  strictest  sense,  is  of  the 
utmost  importance.  If  confounded  with  any  thing,  or  taken 
into  any  partnership,  the  whole  science  is  thrown  into  con- 
fusion. 

It  has  been  common  for  writers  to  speak  of  exchangeable 
value,  intrinsic  value,  value  in  use,  &c. ;  but  all  these  terms 
are  inappropriate.  The  adjectives  are  superfluous :  they 
have  no  significance  whatever.  To  speak  of  exchangeable 
value  is  to  speak  of  exchangeable  exchangeability.  The 
term  "  value,"  in  the  science  of  values,  always  implies  power 
in  exchange,  and  nothing  else. 

Of  all  the  writers  on  the  subject,  no  one  seems  to  have 
been  more  full  and  clear  in  the  definition  and  illustration 
of  value  than  M.  Bastiat,  in  his  "  Harmonies  of  Political 
Economy:  "  — 

"Theorists  have  set  out,  in  the  first  instance,  by  confounding 
value  with  utility.  This  was  their  first  error ;  and,  when  they 
perceived  the  consequences  of  it,  they  thought  to  obviate  the  diffi- 
culty by  imagining  a  difference  between  value  in  use  and  value  id 
exchange,  —  an  unwieldy  tautology,  which  had  the  fault  of  attach 
ing  the  same  word  'value'  to  two  opposite  phenomena"  (p.  161). 

"  The  theory  of  value,"  he  further  says,  "  is  to  political  economy 
what  numeration  is  to  arithmetic.  Value  is  the  relation  of  two 
services.  The  idea  of  value  entered  into  the  world  for  the  first 
time  wheu  a  man  said  to  his  brother,  '  Do  this  for  me,  and  I  will 
do  this  for  you ; '  they  had  come  to  an  agreement :  then,  for  the 
first  time,  we  could  say  the  two  services  exchanged,  —  were  tcorth 
each  other." 

The  case  of  the  blind  man  and  the  paralytic  is  given  in 
illustration.  The  blind  man  says,  "  I  have  limbs  :  you  have 
eyes.  I  will  carry  you :  you  shall  be  my  guide."  Each 
receives  a  benefit ;  their  services  are  exchanged, —  valued  by 


10  DEFINITIONS.  [BOOK  I. 

each  other.  Here  we  have  value  appearing,  not  in  material 
wealth,  but  in  services ;  yet  the  principle  is  just  the  same  as 
when  the  hatter  says  to  the  bootmaker,  "  I  will  give  you  a 
hat  for  a  pair  of  boots,"  and  they  change  accordingly.  They 
really  exchange  their  mutual  services,  which  have  been  put 
into  the  form  of  material  objects. 
Another  illustration  is  given :  — 

"  I  wish  for  water  to  quench  my  thirst ;  I  go  two  miles  to  the 
spring,  and  get  it.  My  neighbor  goes  on  the  same  errand.  I  say 
to  him,  '  Bring  me  water,  and  I  will  do  something  in  the  mean  time 
for  you  ;  I  will  teach  your  child  to  spell.'  Here  is  the  exchange  of 
two  services :  one  is  worth  the  other.  Presently,  I  say  to  my 
neighbor,  '  Instead  of  teaching  your  child  while  you  are  gone  for 
the  water,  I  will  pay  you  twopence  each  time.'  If  the  proposal  is 
accepted,  we  say  the  service  is  worth  twopence.  If  others  in  the 
neighborhood  employ  the  same  man  to  bring  water,  he  becomes  a 
water-merchant ;  and  the  value  of  water  is  as  fully  recognized  as 
the  value  of  wheat.  The  water,  at  first  valueless,  is  now  an  article 
of  wealth.  It  has  not  changed  its  chemical  qualities,  but  services 
have  become  materialized,  or  incorporated  with  it.  If  the  well,  in 
the  case  supposed,  were  brought  nearer  to  the  village,  the  value 
of  the  water  would  be  reduced,  because  less  labor  or  service  would 
be  required  to  obtain  it." 

Suppose  an  aqueduct  built  by  the  joint  labor  of  the  com- 
munity. The  business  of  the  human  water-carrier  has  ceased ;  but 
not  the  less  is  the  value  of  the  water,  delivered  at  the  door,  the 
product  of  labor.  The  labor  has  been  invested  with  a  permanent 
form,  as  pipes,  walls  of  masonry,  gates,  &c.  Labor  has  been  accu- 
mulated for  the  purpose,  instead  of  using  the  hourly  labor  of  the 
water-carrier.  The  industry  of  the  bricklayer  and  the  plumber 
carries  water  years  after  they  ceased  to  work  on  the  aqueduct. 

"We  have  said  that  it  was  not  the  properties  of  the  water  that 
gave  value ;  no  more  does  the  value  reside  in  the  mere  delivery  of 
the  same.  The  water-works  of  some  regions  furnish  them  water 
on  the  ground,  at  the  rate  of  a  million  and  a  balf  square  feet  a  day 
to  each  square  league.  Yet  the  water  has  no  value  there  ;  for  the 
agencies  employed  are  not  the  labor  of  man,  but  the  currents  of  air, 
—  Nature's  pipes  and  conduits. 


CHAP.  III.]  DEFINITION   OP  VALUE.  11 

The  diamond,  as  M.  Bastiat  observes,  makes  a  great  figure 
in  works  on  political  economy.  It  is  adduced  as  an  illustra- 
tion of  the  laws  of  value,  or  of  the  supposed  disturbance  of 
those  laws ;  and,  as  he  gives  a  more  full  and  satisfactory 
explanation  of  the  cause  of  value  in  a  diamond  than  any 
other  writer,  we  shall  quote  his  words :  — 

"  I  take  a  walk  along  the  sea-beach,  and  I  find  by  chance  a 
magnificent  diamond.  I  am  thus  put  in  possession  of  great  value. 
Why  ?  Am  I  about  to  confer  a  great  benefit  on  the  human  race  ? 
Have  I  devoted  myself  to  a  long  and  laborious  work  ?  Neither  the 
one  or  the  other.  But,  undoubtedly,  because  the  person  to  whom  I 
transfer  it  considers  that  I  have  rendered  him  a  great  service,  —  all 
the  greater  that  many  rich  men  desire  it,  and  I  alone  can  render  it. 
The  grounds  of  his  judgment  may  be  controverted.  Be  it  so.  It 
may  be  founded  in  pride  or  vanity.  Granted  again.  But  this 
judgment  has  nevertheless  been  formed  by  a  man  who  is  disposed 
to  act  upon  it,  and  that  is  sufficient  for  my  argument.  Far  from 
the  judgment  being  based  on  a  reasonable  appreciation  of  utility, 
we  may  allow  that  the  very  reverse  is  the  case.  Ostentation  makes 
great  sacrifices  for  what  is  utterly  useless.  In  this  case,  the  value, 
far  from  bearing  a  necessary  proportion  to  the  labor  performed  by 
the  person  who  renders  the  service,  may  be  said  rather  to  bear 
proportion  to  the  labor  saved  to  the  person  who  receives  it.  This 
general  law,  which  has  not,  so  far  as  I  know,  been  observed  by 
theoretical  writers,  nevertheless  prevails  universally  in  practice. 

"The  transaction  relative  to  the  diamond  may  be  supposed  to 
give  rise  to  the  following  dialogue :  — 

"  '  Give  me  your  diamond,  sir.' 

"  '  With  all  my  heart.  Give  me,  in  exchange,  your  labor  for  an 
entire  year.' 

"  '  Your  acquisition  has  not  cost  you  a  minute's  work.' 

"  '  Very  well,  sir :  find  an  equally  lucky  minute.' 

"  '  Yes  ;  but,  in  strict  equity,  the  exchange  ought  to  be  one  of 
equal  labor.' 

"  '  No :  in  strict  equity,  you  put  your  value  on  your  service,  and 
I  upon  mine.  I  don't  force  you :  why  should  you  lay  a  constraint 
upon  me  ?  Give  me  a  whole  year's  labor,  or  seek  a  diamond  for 
yourself 


12  DEFINITIONS.  [BOOK  I. 

"  '  But  that  might  entail  on  me  ten  years'  work,  and  would  prob- 
ably end  in  nothing.  It  would  be  wiser  and  more  profitable  to 
devote  those  ten  years  to  another  employment.' 

"  '  It  is  precisely  on  that  account  I  imagined  I  was  rendering  you 
a  service  in  asking  you  only  one  year's  work.  I  thus  save  you  nine, 
and  that  is  the  reason  why  I  attach  great  value  to  the  service. 
If  I  appear  to  you  exacting,  it  is  only  because  you  regard  the  labor 
which  I  have  performed;  but  consider  also  the  labor  I  save  you, 
and  you  will  find  me  reasonable  in  my  demands.' 

"  *  It  is  not  less  true  that  you  profit  by  nature.' 

"  '  And,  if  I  were  to  give  away  what  I  have  found,  for  little  or 
nothing,  it  is  you  who  would  profit  by  it.  Besides,  if  this  diamond 
possesses  great  value,  it  is  not  because  Nature  has  been  elaborat- 
ing it  since  the  beginning  of  time.  She  does  as  much  for  a  drop 
of  dew.' 

"  '  Yes ;  but,  if  diamonds  were  as  common  as  dew-drops,  you 
could  no  longer  lay  down  the  law  to  me,  and  make  your  conditions.' 

it  i  Very  true  ;  and,  in  that  case,  you  would  not  address  yourself 
to  me,  or  would  you  be  disposed  to  recompense  me  highly  for  a 
service  you  could  perform  yourself.' 

The  result  of  this  dialogue,  M.  Bastiat  regards  as  proving 
that  value  no  more  resides  in  the  diamond  than  in  air  or 
water. 

"  It  resides  exclusively  in  the  services  which  we  suppose  to  be 
rendered  and  received  with  reference  to  these  things,  and  is  deter- 
mined by  the  free  bargaining  of  the  parties  who  make  the  ex- 
change. The  pretended  value  of  commodities  is  only  the  value  of 
services,  real  or  imaginary,  received  and  rendered  in  connection 
with  them.  Value  does  not  reside  in  the  commodities  themselves, 
and  is  no  more  to  be  found  in  a  loaf  of  bread  than  in  a  diamond, 
the  water,  or  the  air.  No  part  of  the  remuneration  goes  to  Nature. 
It  proceeds  from  the  final  consumer  of  the  article,  and  is  distributed 
exclusively  among  men." 

Again :  — 

"  In  order  that  a  service  should  possess  value  in  the  economical 
sense  of  the  word,  it  is  not  at  all  indispensable  that  it  should  be 
real,  conscientious,  and  useful  service.     It  is  sufficient  that  it  is 


CHAP,  in.]  DEFINITION  OF  VALUE.  13 

accepted,  and  paid  for  by  another  service.  It  depends  wholly  on 
the  judgment  we  form  in  each  case ;  and  this  is  the  reason  why 
morals  will  always  be  the  best  auxiliary  of  political  economy. 
Economic  science  would  be  impossible  if  we  admitted  as  values 
only  values  correctly  and  judiciously  appreciated." 

Value  does  not  always  exist  in  a  visible  form.  The 
wealth  of  a  nation  is  generally  supposed  to  consist  in  the 
aggregate  of  its  material  objects  having  value, — in  its  lands, 
buildings,  ships,  merchandise,  treasure,  canals,  railroads, 
&c. ;  but  its  potential  wealth,  or  power  of  creating  wealth, 
includes  not  only  all  these  named,  but  the  intelligence,  skill, 
industry,  and  productive  energy  of  its  citizens.  No  in- 
ventory of  a  nation's  effects  will  give  an  adequate  idea  of  its 
economic  condition,  unless  we  hold  in  view  its  capacity  of 
development,  and  the  industrial  genius  of  the  people. 

The  main  principle  in  the  theory  of  value  is  expressed  in 
the  common  phrase,  "  A  thing  is  worth  what  it  will  fetch," 
—  that  is,  what  some  one  will  give  for  it ;  the  value  depend- 
ing on  the  will  of  the  purchaser,  as  determined  by  his 
judgment. 

Value  is  the  appreciation  of  services. 

The  value  of  a  thing  is  the  service  or  labor  which  it  will 
command  in  exchange. 

If  there  is  no  resistance  to  the  possession  of  an  article,  it 
can  have  no  value.  Labor  alone  does  not  always  create 
value  ;  but  value  never  exists  in  an  article,  unless  some  one 
is  willing  to  give  labor,  in  some  form  or  other,  in  exchange 
for  it. 

The  ancients  thus  described  the  combinations  of  exchange : 

Do  ut  des,  Commodity  for  commodity. 

Do  ut  facias,  Commodity  for  service. 
Facio  ut  des,  Service  for  commodity. 
Facio  ut  facias,  Service  for  service. 

This  statement  exhausts  all  the  modifications  of  the 
principle. 


11  DEFINITIONS.  [BOOK  I. 

CHAPTER  IV. 

DISTINCTION  BETWEEN  VALUE  AND   UTILITY. 

We  have  now  gone  over  all  the  ground  belonging  to  the 
theory  of  value:  but  we  cannot  leave  it  without  dwelling 
a  while  on  one  part  of  it ;  without  clearly  marking  the 
boundary  which  separates  it  from  the  domain  of  utility,  —  a 
most  troublesome  and  intrusive  neighbor. 

There  is  between  utility  and  value  a  distinction  as  real  as 
between  weight  and  color. 

Suppose  a  farmer  in  Vermont  has  one  thousand  bushels 
of  wheat ;  its  value  is  two  thousand  dollars.  Its  utility  is, 
that  it  will  make  forty  thousand  pounds  of  bread. 

A  farmer  in  Illinois  has  one  thousand  bushels  of  wheat, 
equally  good ;  but  its  value  is  only  one  thousand  dollars.  Its 
utility  is  just  the  same.  It  will  make  as  much  bread,  and 
as  good,  as  the  wheat  of  Vermont.  The  value,  then,  does 
not  reside  in  the  utility,  but  in  the  power  in  exchange.  The 
wheat  of  Vermont  commands  a  higher  price  than  that  of 
Illinois,  because  of  its  location  nearer  to  the  market.  Here 
location  means  labor:  that  is,  the  labor  required  to  overcome 
it.  This  will  be  still  more  apparent,  if  we  suppose  the  far- 
mer removed  a  thousand  miles  by  land  from  any  market. 
His  wheat  might  then  have  no  value ;  yet  its  natural,  inhe- 
rent utility  would  be  as  great  as  ever. 

Take  another  illustration.  A  pound  of  small  nails  or 
tacks  formerly  had  the  value  of  twenty-five  cents,  equal  to 
one-fourth  of  a  day's  labor.  By  the  introduction  of  ma- 
chinery, the  value  was  reduced  to  ten,  then  to  five  cents,  or 
the  twentieth  part  of  a  day's  labor  ;  the  utility  remaining  all 
the  time  as  at  first.  The  value  of  many  articles,  especially 
those  called  manufactures,  are,  in  the  ordinary  progress  of 
human  effort,  constantly  diminishing,  though  never  anni- 
hilated.   This  is  because  the  labor  or  service  to  be  appreci- 


CHAP.  IV.]  VALUE   AND   UTILITY.  15 

ated  in  such  values  is  constantly  lessening,  though  it  can 
never  wholly  disappear.  In  this  is  seen,  not  only  the 
certain  distinction  between  value  and  utility,  but  one  of 
the  most  beneficent  laws  of  the  science,  which  may  be  stated 
as  follows :  Value  moves,  diminished  constantly  by  the  sub- 
stitution of  the  gratuitous  agencies  of  Nature,  by  the  inge- 
nuity and  industry  of  man.  Utility  remains  fast-anchored 
in  the  wants  of  man  and  the  properties  of  matter.  This 
is  the  primary  fact.  But  value  moves  again,  —  not  to  in- 
crease, but  to  multiply.  Values  are  no  greater,  but  there 
are  more  of  them.  The  factor  that  multiplies  is  the  ever- 
growing wants  of  man.  Now,  utility  begins  to  move,  ex- 
panding with  the  enlargement  of  man's  activities,  and  the 
increase  of  the  fruits  of  labor.  Here  we  have  the  promise 
that  the  human  race  is  destined  to  a  constant  augmentation 
of  utilities,  bringing  in  a  great  amelioration  of  its  condition. 
Man  is  relieved  from  part  of  his  labor  only  to  feel  new 
wants,  and  so,  through  fresh  efforts,  to  find  greater  satis- 
factions in  life. 

Political  economy  makes  no  inquiry  whether  the  increase 
of  material  objects  of  desire  is,  in  truth  and  on  the  whole, 
a  good.  It  assumes  this.  It  leaves  to  others  the  discussion 
whether  the  highest  interests  of  society  are  attained  by 
repelling  the  kindness  of  Nature,  and  by  denying  the  in- 
stincts of  man.  This  kindness,  and  those  instincts,  politi- 
cal economy  accepts,  and  goes  forward  from  them.  It  can 
never  become  stoic.  It  is  not  a  science,  unless  wealth  is  a 
good. 

It  is  a  science ;  and  it  has  no  doubt  that  the  healthful, 
honest  increase  of  physical  necessaries,  comforts,  luxuries, 
and  refinements,  with'  the  opportunities  which  they  bring  for 
mental  improvement  and  moral  culture,  with  the  safeguards 
they  place  upon  social  order  and  personal  rights,  and  with 
the  manifold  strong  and  subtile  motives  which  they  contri- 
bute to  the  exertion  of  all  the  human  faculties,  and  the  full, 
friendly  intercourse  of  all  communities  and  peoples,  —  it 


16  DEFINITIONS.  [BOOK   I. 

has  no  doubt  that  this  is  desirable.  But  it  does  not  labor 
to  prove  it  so.  It  does  not  found  itself  on  any  supposed 
refutation  of  asceticism.  It  takes  without  inquiry  the  uni- 
versal inclination  to  the  accumulation  of  wealth,  under  the 
restraints  of  mutual  duties  and  common  rights. 

We  have  said  that  Nature  adds  value  to  nothing.  Though 
unceasingly  at  work  for  man,  she  receives  no  compensation. 
She  creates  utilities  beyond  computation,  but  does  all  gra- 
tuitously. Wind,  water,  and  steam  are  most  efficiently 
engaged  in  producing  commodities  necessary  to  the  welfare 
of  mankind ;  and  the  earth  is  unceasingly  active  to  bring 
forth  man's  food  in  its  many  forms.  Yet  all  is  done  with- 
out adding  to  the  wealth  of  the  world.  The  forces  "  work 
for  nothing,"  and  hence  confer  no  value.  The  power  of 
the  wind,  for  example,  in  propelling  vessels,  adds  no  value 
to  the  articles  transported.  But,  it  may  be  objected,  would 
it  not  cost  a  great  deal  more  to  transport  that  merchandise, 
if  it  had  to  be  done  by  human  hands  working  at  the  oar  ? 
Certainly ;  and,  from  the  very  illustration,  it  appears  that 
the  power  of  the  wind  has  not  increased  the  value,  but 
rather  diminished  it.  It  has  taken  the  slaves  from  the 
bench,  and  does  the  merchant's  rowing  for  him.  It  is  Na- 
ture's work,  not  man's  labor ;  and  hence  value  goes  down, 
while  utility  stands  fast. 

Transportation  does,  indeed,  add  to  the  value,  but  only 
because  man's  vessels  and  man's  labor  are  employed  in 
effecting  it.  All  the  natural  forces  that  come  in  take  off 
from  value.  If  a  merchant  were  to  make  a  charge  for  the 
use  of  his  vessel,  the  payment  of  his  hands,  and  the  ordi- 
nary rate  of  profit  on  his  voyage,  and,  besides  these,  for  the 
use  of  the  wind,  it  would  not  be  allowed.  Competition 
would  correct  his  philosophy  ;  and  the  eloquence  of  unsold 
merchandise  would  be  his  teacher  in  the  theory  of  value. 
Take  steam  for  an  example  in  point.  The  services  of  tins 
great  agent  in  England  are  probably  equal  to  the  muscular 
effort  of  one  hundred  millions  of  men ;  but  the  whole  of  it 


CHAP.  IV.]  VALUE   AND   UTILITY.  17 

is  gratuitous.  All  that  is  required  to  secure  these  services 
is  machinery  and  fuel,  whose  whole  value  has  been  given  by 
labor. 

If  we  look  to  the  fertility  of  the  land,  by  far  the  greatest 
of  all  the  natural  forces  engaged  in  production,  we  shall 
find  that  it  confers  no  value.  Is  it  asked,  "  Why,  then,  do 
men  pay  for  the  use  of  it  ?  Why  buy  it  at  a  large  price  ?  " 
The  answer  at  length  to  this  question  will  be  deferred  till  the 
discussion  of  rent ;  but  it  will  be  sufficient  for  the  purpose 
of  the  present  argument  to  say,  that  it  is  because  appropri- 
ated or  owned  (whether  rightly  or  wrongly)  by  individuals 
who  can  make  a  profitable  use  of  it  themselves. 

There  are  many  special  products  which  have  been  pre- 
sented, in  discussion  of  this  subject,  as  exceptions  to  the 
principle,  that  value  comes  only  with  and  by  labor;  e.g., 
precious  stones,  curiosities,  the  precious  metals,  monopolies, 
patents,  &c,  &c.  The  relations  of  the  first  two  are  fully 
defined  in  the  extract  already  offered  from  the  work  of  M. 
Bastiat.  Of  gold  and  silver,  it  is  enough  to  say,  that,  what- 
ever the  theories  of  the  past,  it  is  now  an  abundantly  recog- 
nized fact,  that  the  mining  of  these  metals  proceeds  strictly 
according  to  the  laws  of  industry,  with  hardly  its  ordinary 
accidents  and  chances.  It  is  estimated,  that,  when  brought 
to  market,  these  metals  have  cost  sixty-six  cents  on  the 
dollar.  The  remaining  thirty-four  cents  constitute  the  re- 
muneration of  the  laborer  and  the  capitalist ;  which  cannot 
be  regarded  as  excessive  when  the  privations,  risks,  and 
hardships  of  the  occupation  are  kept  in  view.  Monopolies 
and  patents  confer  no  value,  but  simply  contravene  its  laws. 
This  is  their  object.  They  are  designed,  by  giving  the 
exclusive  right  to  produce  or  sell  a  given  article,  to  reward 
the  favored  party  for  his  skill  in  invention,  or  for  a  general 
good  supposed  to  be  conferred  upon  the  community.  They 
are  compulsory  contributions  levied  upon  the  public  for  the 
benefit  of  individuals. 

2 


18  DEFINITIONS.  [BOOK  I. 


CHAPTER    V. 

DEFINITION    OF    LABOR. 

We  have  defined  value  at  great  length  and  with  various 
illustrations,  with  the  result,  to  our  minds,  that  it  arises 
from  the  union  »of  desire  and  labor ;  but  we  have  not  defined 
the  latter  term. 

What  is  labor  ? 

The  voluntary  efforts  of  human  beings  to  produce  objects 
of  desire. 

Labor  is  always  irksome.  This  is  law.  Men  do  not  vol- 
untarily put  forth  their  exertions,  except  for  a  reward.  By 
the  beneficent  provision  of  Nature,  habit  assists  our  activ- 
ities ;  great  desires  overcome  the  sense  of  weariness  and 
pain  ;  the  impetus  of  one  movement  carries  us  on  into  the 
next.  Toil  has  its  compensations.  Its  fruit  is  pleasant  and 
wholesome.  But  not  the  less  is  it,  of  itself,  against  the  drift 
of  man's  natural  inclinations.*  It  is  because  men  do  not 
voluntarily  put  forth  exertions,  except  for  a  reward,  that 
every  thing  which  costs  labor  will,  as  a  general  rule,  com- 
mand a  corresponding  amount  of  service  or  labor.  There- 
fore it  is  that  labor  is  the  essential  measure  of  value. 
Whatever  disturbing  causes  there  may  be,  it  will,  on  the 
whole  and  in  the  long-run,  be  true  that  labor  commands  its 
equivalent  in  labor. 

In  this  definition,  we  have  spoken  of  voluntary  efforts 
alone,  because  involuntary  or  uncompensated  efforts  are 
not  to  be  classed  as  labor.  They  are  merely  the  result  of 
the  use  of  a  given  amount  of  capital.     Slaves  are  owned, 

*  "  Labor  is  either  bodily  or  mental,  or,  to  express  the  distinction  more 
comprehensively,  either  muscular  or  nervous ;  and  it  is  necessary  to  include 
in  the  idea,  not  solely  the  exertion  itself,  but  all  feelings  of  a  disagreeable 
kind,  all  bodily  inconvenience  or  mental  annoyance,  connected  with  the  em- 
ployment of  one's  thoughts  or  muscles,  or  both,  in  a  particular  occupation.' 
—  J.  Stuakt  Mill,  Principles  of  Political  Economy,  p.  29,  Am.  ed.,  vol.  i. 


OHAP.  VI.]  DEFINITION   OF   CAPITAL.  19 

like  horses  or  oxen ;  and  what  value  they  confer  is  from 
their  employment  as  so  much  capital.  This  distinction  is 
not  unimportant,  because  we  shall  see  that  capital  is  con- 
trolled by  other  laws  than  those  which  govern  labor. 

Under  a  free-labor  system,  as  will  be  shown,  there  are 
two  proprietors  of  value, — the  laborer  and  the  capitalist. 
Under  a  slave-labor  system,  only  the  latter  has  any  share  in 
the  product. 


CHAPTER  VI. 

DEFINITION    OF    CAPITAL. 

Labor  enters  into  production,  or  the  creation  of  values,  in 
two  ways :  — 

First,  As  the  labor  of  the  present. 

Second,  As  the  labor  of  the  past. 

We  call  the  first  "  labor  "  simply ;  the  second,  "  capital," 
which  is  accumulated  labor.  In  their  nature,  these  are 
identical.  They  have  assumed  different  forms,  have  ac- 
quired independent  rights,  and  each  obeys  certain  laws 
peculiar  to  itself.  These  two  forms  of  labor  may  be,  and 
often  are,  owned  by  different  persons.  One  man  has  present 
labor  at  his  command.  This  must  be  his  own.  Another 
has  accumulated  labor.  This  may  be  his  own,  or  that  of 
others,  of  which  he  has  come  into  possession. 

In  practice,  the  two  forms  of  labor  must  come  together 
and  help  each  other,  if  they  would  effect  the  barest  subsist- 
ence of  mankind.  Even  the  naked  savage  goes  hungry  till 
he  gets  his  bow  and  his  fishing-hook  by  the  labor  of  his 
hands.  As  society  goes  forward  to  plenty,  comfort,  luxury, 
civilization,  the  union  and  mutuality  of  the  two  become 
more  intimate  and  vital.  By  such  a  connection  alone  is 
wealth  produced. 


20  DEFINITIONS.  [BOOK  I. 

The  growth  of  capital,  and  the  steps  by  which  it  comes  to 
its  proper  position  in  the  creation  of  values,  may  be  best 
shown  by  a  familiar  illustration.  An  able-bodied  workman 
presents  himself  to  you,  having  the  full  disposal  of  his  own 
powers,  fully  representing  the  labor  of  the  present,  and  that 
only.  We  will,  however,  compromise  so  far  with  his  neces- 
sities as  to  allow  him  to  be  clothed ;  though  each  article  he 
wears  has  come  from  the  labor  of  the  past,  and,  in  this 
supposition,  is  capital.  He  has  no  tools ;  and,  if  you  have 
no  work  that  can  be  done  without  tools,  you  must  deny  him 
employment.  His  chances,  then,  of  labor,  are  hardly  as 
one  to  a  hundred  without  tools.  In  the  other  ninety-nine, 
he  starves  for  want  of  capital.  But,  by  chance,  you  find 
work  requiring  no  help  from  accumulated  labor.  You  set 
him  to  clearing  a  field  by  throwing  the  stones  into  heaps. 
He  has  secured  subsistence  for  the  day  without  capital.  It 
was  uncertain  whether  he  would  obtain  it.  It  is  certain  the 
employment  cannot  last  long,  since  need  of  such  assistance 
closes,  perhaps,  with  the  first  evening ;  and  you  send  him 
away  helpless  in  the  midst  of  civilization.  His  livelihood 
to-morrow  is  still  more  precarious.  But  no :  he  carries 
away  his  earnings  for  the  day.  He  chooses  to  lay  them  out 
in  an  axe,  rather  than  on  any  object  of  comfort  or  pleasure. 
He  has  practised  a  self-denial.  He  appears  the  next  morn- 
ing with  his  axe.  He  has  enlarged  the  sphere  of  his  activity, 
perhaps,  fifty-fold.  He  has  now  fifty  chances  of  employ- 
ment. He  has  secured  work  for  fifty  days.  Before  the 
close  of  this  period,  he  can,  by  thrift,  provide  for  his  imme- 
diate bodily  wants ;  pay  for  his  clothes,  for  which  we  gave 
him  credit  more  in  charity  than  logic  ;  and  become  the 
possessor  of  a  pick  and  shovel,  scythe  and  rake.  He  is  now 
a  full  farm-laborer,  able  to  do  any  part  of  the  strictly  neces- 
sary work  of  agriculture  with  such  tools  as  he  has,  and  may 
rightfully  expect  employment  every  day  of  the  year.  So  it 
is,  in  the  grand  field  of  the  world's  industry,  that  capital  — 
the  accumulation  of  labor  —  helps  the  labor  of  the  present, 


CHAP.  VII.]        RELATION   OF   CAPITAL  AND  LABOR.  21 

not  only  to  its  immediate  sustenance,  but  to  permanent 
occupation,  to  increase,  and  to  the  highest  economic  civi- 
lization. 


CHAPTER  VII. 

RELATION     OP     CAPITAL     AND     LABOR. 

But  this  union  creates  the  competing  interests  of  labor  and 
capital,  since  they  are  generally  found  in  different  hands. 
An  interest  is,  in  scientific  meaning,  a  share.  Each  has 
now  only  a  share.  Before,  each  had  the  whole  of  its  own 
product,  but  a  most  melancholy  whole.  They  are  competi- 
tors ;  for  those  shares  are  not  determined  absolutely  in  the 
nature  of  the  union  to  which  they  have  consented.  It  is  by 
the  earnestness  and  persistency  of  competition  alone  that 
either  can  secure  its  remuneration,  or  maintain  its  existence. 

But  they  are  not  antagonists.  All  their  effort,  even  in 
the  severest  assertion  of  their  individual  claims,  goes  to  the 
increase  of  the  common  property,  and  the  advancement  of 
their  mutual  service.  Antagonism  tends  to  destroy.  Its 
purpose  is,  so  far  as  it  proceeds,  to  remove  one  or  the  other 
of  the  parties.  The  competition  of  labor  and  capital  never 
ceases ;  but  it  respects  the  bond  of  union  in  which  only 
each  has  its  own  full  development. 

Here  we  see  the  folly  of  the  supposed  antagonism.  They 
are  partners,  and  should  divide  the  results  of  industry  in 
good  faith  and  good  feeling.  False  philosophy,  or  unprin- 
cipled politics,  may  alienate  their  interests,  and  set  them  at 
discord.  Capitalists  may  encroach  on  labor.  Laborers 
may,  in  their  madness,  destroy  capital.  Such  is  the  work 
of  ignorance  and  evil  passions.  It  is  the  surpassing  folly  of 
the  members  that  combined  to  cut  off  supplies  from  the 
stomach. 

However  far  such  a  strife  may  be  carried,  it  must  result 
in  mutual  injuries ;  and  health  can  only  be  restored  by  ob- 


22  DEFINITIONS.  [BOOK  I. 

taming  the  recognition  of  the  full  rights  and  obligations  of 
each.  The  condition  of  well-being  is  peace.  A  false  philos- 
ophy has  set  the  world  at  war  for  ages,  proclaiming  that 
what  one  nation  may  gain  another  must  lose.  Such  a  phi- 
losophy has  had  its  trial,  extending  over  centuries  of  waste 
and  terror ;  and  is  now,  fortunately,  dishonored  through  the 
whole  civilized  world. 

Akin  to  it  is  the  belief  that  hatred  and  retaliation  are  the 
normal  relations  of  capital  and  labor,  and  that  mutual  dis- 
trust and  hurtfulness  are  inevitable  in  all  the  developments 
of  industry.  Such  a  belief  blasphemes  against  the  harmo- 
nies of  Providence,  —  is  sightless  before  the  glorious  order 
of  man  and  nature.  It  was  the  popular  faith  in  such  a  prin- 
ciple of  hurt,  not  help,  between  the  two  great  divisions  of 
industrial  power,  that  effected  the  Revolution  in  France. 
The  cruel,  shallow  selfishness  of  capital  has  robbed  labor  by 
means  of  law.  Labor,  impoverished,  ignorant,  degraded, 
has  often  turned  upon  its  tyrant,  and  laid  in  a  common 
waste  church  and  state,  letters  and  wealth. 


CHAPTER  VIII. 

THE  GENERAL  DIVISIONS  OP  THE  SCIENCE. 

1st,  It  being  admitted  that  man  has  wants  which  he  can 
satisfy  from  the  world  around  him,  and  which  he  desires 
to  satisfy  as  fully  and  easily  as  possible,  we  are  first  led  to 
inquire  in  what  manner  this  can  be  done  most  effectively, — 
how  the  forces  at  his  command  may  be  most  advantageously 
employed ;  in  other  words,  what  are  the  laws  which  govern 

the   PRODUCTION   OF  WEALTH. 

2d,  Since  men  have  different  capacities  and  tastes, — 
since  they  are  placed  in  a  variety  of  circumstances  as  to 
soil,  climate,  and  civilization,  —  their  products  will  be  vari- 


CHAP.  VIII.]      GENEEAL  DIVISIONS  OF  THE   SCIENCE.  23 

ous ;  and  yet,  since  all  men  desire  nearly  the  same  objects, 
an  interchange  of  their  respective  commodities  will  become  a 
necessity.  Hence  arises  that  department  of  industry  called 
exchange,  the  laws  of  which  it  is  the  province  of  political 
economy  to  investigate. 

3d,  Almost  all  objects  which  men  desire  are  produced  by 
the  joint  efforts  of  several  individuals.  One  contributes 
strength ;  another,  skill ;  another,  capital :  yet  the  product 
must  be  distributed  among  them  all,  and  in  just  propor- 
tions. As  this  division,  it  is  quite  clear,  should  not  be  left 
to  the  caprice  of  individuals,  but  be  determined  by  natural 
laws,  it  becomes  one  of  the  departments  of  inquiry  upon 
which  the  political  economist  must  enter.  It  is  here  his 
duty  to  ascertain  what  those  laws  are,  and  under  what  cir- 
cumstances and  conditions  they  will  effect  an  equitable  dis- 
tribution of  the  wealth  which  has  been  produced. 

4th,  As  all  commodities  created  by  human  exertion  are 
designed  for  use,  and  as  such  use  implies  consumption 
more  or  less  rapid,  and  as  upon  this  depends  the  power  and 
disposition  for  reproduction,  the  question  of  consumption 
has  a  scientific  place  among  the  objects  of  our  inquiry,  and 
will  be  found  to  possess  a  practical  importance  second  only 
to  that  of  production. 

These  are  the  four  great  questions  which  suggest  the  gen- 
eral divisions  of  our  subject ;  viz.,  production,  exchange, 
distribution,  and  consumption  of  wealth. 

Exchange  might  not  improperly  be  regarded  as  belonging 
to  the  first  general  division,  since  it  contributes  largely  in 
the  actual  production  of  wealth :  yet,  as  it  also  greatly  facili- 
tates and  increases  consumption,  and  has  influence  through- 
out the  whole  domain  of  human  industry,  it  seems  desirable 
to  regard  it  as  a  separate  department ;  and  it  has  often  been 
treated  as  such  by  writers  on  the  general  subject. 


BOOK   II. 

PRODUCTION. 


CHAPTER  I. 

FOEMS     OF     PRODUCTION. 

All  values  are  created  by  modifications  of  existing  matter. 
Man  cannot  create  one  particle ;  but  he  can  modify  what  he 
finds,  or  change  its  condition,  in  three  ways  ;  viz. :  — 

By  TRANSMUTATION,    by  TRANSFORMATION,   by  TRANSPORTATION. 

First,  by  transmutation. 

This  is  eminently  the  work  of  the  agriculturist,  who, 
availing  himself  of  the  chemical  agencies  of  the  earth  and 
air,  transmutes  seeds  into  vegetables,  fruits,  and  grains ; 
and  these  again,  by  the  aid  of  animal  organizations,  into 
butter,  beef,  hides,  &c.  This  is  the  most  extensive  branch 
of  industry,  and  employs  probably  four-fifths  of  the  human 
race  from  generation  to  generation.  It  is  the  base  of  the 
great  pyramid  of  production.  It  furnishes  the  material 
and  the  support  of  all  other  forms  of  labor ;  and  not  this 
only,  but  it  renews  and  restores  their  waste  with  an  unceas- 
ing supply  of  fresh  bodily  and  mental  power.  The  air  of 
trade  and  of  the  mill  heats  and  rises,  and  cold  currents 
rush  in  from  the  prairie  and  the  mountain.  The  foot  of 
the  rustic  is  ever  turned  to  the  marts  of  commerce,  and  the 
busy  gatherings  of  men.  He  comes  with  clumsy  tread  and 
homespun  dress  ;  but  he  takes  the  first  place  in  the  market 
and  the  synagogue.  Basil  enters  Constantinople  as  night  is 
falling,  stares  about  on  the  magnificence  of  the  city,  and 
[24] 


CHAP.  I.]         FORMS  OF  PRODUCTION.  25 

falls  asleep  on  the  steps  of  the  Church  of  St.  Diomede. 
He  is  tired  of  Macedon.  He  has  business  on  the  throne  of 
the  world.  He  who  restored  the  laws  of  the  Eastern  em- 
pire, and  reclaimed  the  lands  deluged  by  the  barbarian 
floods,  is  the  exemplar  of  the  countryman,  in  all  times,  gaz- 
ing rudely  around  on  the  luxury  his  homely  virtues  are  to 
appropriate.  The  millionnaire  dashes  by  in  his  splendid 
turnout :  a  raw,  tall  lad,  with  a  bundle  on  a  stick,  looks  on 
with  wonder,  —  the  employer  of  that  man's  children. 

Just  as  agriculture  sends  to  the  markets  and  the  mills  of 
the  world  their  materials,  so  it  sends  them  their  workmen. 
Strength  and  even  life  go  fast  in  the  eager  competitions  of 
manufactures  and  trade.  Cool  air,  fresh  blood,  flows  in 
from  the  country,  to  supply  the  waste.  The  bare,  bleak 
hills,  where  Nature  grudges  every  morsel  of  food,  and  stabs 
cruelly  through  every  chink  in  the  wall,  every  rent  in  the 
clothes,  feed  the  busy  cities  with  men.  The  streams  of  vig- 
orous life  run  off  from  them  to  refresh  the  plains  below. 

Agriculture  has  no  need  to  receive  back,  in  any  form, 
her  contributions  to  the  other  occupations.  The  power  to 
give  without  exhaustion  lies  in  the  liberal,  healthful  repro- 
duction of  man,  when  living  in  intimate  relations  with 
Nature.  Here,  after  all  its  hurts,  humanity  comes  for  heal- 
ing. War  and  pestilence,  the  fierce  contest  of  the  mart, 
the  stifling  atmosphere  of  the  mill,  may  waste  our  kind  in 
quick  or  lingering  deaths ;  but  still,  by  the  side  of  the 
brooks,  men  will  be  born  to  hold  up  the  frame  of  industry 
and  social  order  when  their  supporters  faint  and  fail.  Yet 
agriculture  does  get  back  a  certain  share  of  what  it  gives. 
Because  it  is  not  a  labor  of  ambition,  because  honors  are 
not  to  be  gathered  in  the  fields  it  cultivates,  because  the  ex- 
citements of  machinery  and  association  are  not  to  be  found 
in  its  work  or  play,  because  quick  wealth  is  not  to  be  real- 
ized in  its  slow  increase,  the  rustic  turns  himself  to  the 
city ;  and  because  it  is  not  a  labor,  of  ambition,  and  for 
each  of  the  other  reasons  given,  the  citizen,  weary  with  all, 


26  PRODUCTION.  [BOOK   II. 

goes  back  to  the  open  fields  and  fresh  air  of  the  country. 
The  cabbages  of  Diocletian,  the  eggs  of  John  Ducas  Vata- 
ces,  the  apples  of  Sir  William  Temple,  are  the  return  made 
to  agriculture  for  Basils,  Astors,  and  Lawrences. 

But  the  department  of  agriculture  is  not  confined  to  the 
popular  view  of  it.  When  grain  is  produced,  the  seed  must 
be  planted  in  prepared  ground,  the  long  interval  of  growth 
to  maturity  must  be  filled  with  care  and  labor  ;  and,  at  last, 
the  work  of  harvesting  completes  the  round  of  duties  that  go 
to  the  production  of  the  grain.  But  there  are  great  indus- 
tries in  the  department  of  agriculture,  where  harvesting 
alone  is  performed  by  man.  Nature  has  done  all  the  rest. 
Man's  part  is  to  find  and  to  take  of  her  bounty.  Such  an 
industry  is  mining,  —  whether  of  iron  or  coal,  whether  of 
diamonds  underground  in  Golconda,  or  sponge  under  water 
in  the  Archipelago.  Such  an  industry  is  the  fisheries, — 
whether  of  whales  off  Greenland,  of  cod  off  Newfoundland, 
or  of  pearl-oyster  off  Ceylon.  So  great,  indeed,  is  the  sci- 
entific extension  of  the  department  of  agriculture,  that  even 
the  smelting  of  the  ore,  and  the  transportation  from  the 
fishing-grounds  to  the  port  from  which  the  venture  began, 
are  included  in  it,  because  these  first  put  the  products  in 
the  possession  of  the  capitalist  in  an  available  form.  Any 
further  change,  whether  to  make  the  metal  up  into  forms 
for  use,  or  carry  the  fish  or  oil  or  pearls  to  market,  would 
come  under  the  other  forms  of  production,  to  which  we  now 
proceed. 

Man  modifies  matter  and  exchanges  its  condition,  — 

Secondly,  by  transformation. 

This  is  the  business  of  the  manufacturer  and  the  me- 
chanic. These  create  values  by  changing  the  forms  of 
matter,  as  cotton  and  wool  into  cloth,  iron  into  tools  and 
implements.  This  is  the  second  great  department  of  human 
industry.  Its  ramifications  extend  throughout  the  world, 
yet  not  everywhere  of  the  same  vigor  and  extent.  Since 
manufactures,  as  a  whole,  do  not  meet  wants  so  primitive 


CHAP.  1.]         FORMS  OF  PRODUCTION.  27 

and  absolute  as  does  agriculture,  they  are,  by  a  law  evi- 
dent in  all  industry,  found  not  to  be  so  equally  diffused. 
Those  needs  which  are  peremptory  and  instant  will,  from 
that  reason,  tend  to  obtain  their  supply  from  the  immediate 
neighborhood  in  which  they  arise.  The  nearer  objects  of 
desire  approach  to  being  luxuries,  the  more  cosmopolitan 
they  become.  Other  reasons,  which  will  appear  in  our  prog- 
ress, will  further  account  for  the  unequal  growth  of  manu- 
factures, which  have  yet  more  uniformity  than  is  exhibited 
in  statistical  tables,  or  in  general  estimation,  since  the 
staple  articles  of  manufacture  attract  more  attention  than 
those  multiform  smaller  products  which  far  outweigh  them 
in  value. 

The  distribution  of  manufactures  is  governed  by  a  variety 
of  conditions,  among  which  may  be  briefly  stated  the  fol- 
lowing :  — 

1.  The  industrial  genius  of  a  people.  "Without  plun- 
ging into  the  deep  questions  of  ethnical  differences,  or 
compensations  in  the  whole  of  character,  it  is  yet  evident 
beyond  discussion,  that  the  active  powers  of  every  people 
have  something  of  their  own  which  they  do  not  fully  share 
with  others.  Were  all  the  nations  of  the  earth  possessed 
of  mental,  moral,  and  physical  qualities  which  could  be 
positively  estimated  to  be,  in  the  sum  of  them,  equal,  it  is 
quite  certain  that  they  would  be  far  from  similar:  their 
energies  would  develop  in  different  lines  towards  different 
objects.  Patience  and  a  kind  of  business  faith  distinguish 
some  peoples,  mark  their  features,  and  are  impressed  dis- 
tinctly in  the  results  of  industry.  Activity  and  daring  spec- 
ulation no  less  characterize  others.  To  a  class  of  minds 
thoroughly  representative  of  more  than  one  nation,  mechan- 
ical contrivance  gives  the  same  glow  of  pleasure  that 
rewards  the  painter  for  his  years  of  toil.  A  distrustful, 
reserved,  secretive  disposition  may  be  observed  through  the 
entire  industry  of  another  country,  tending  to  individual- 
ize efforts  and  discourage  combination.     The  catalogue  of 


28  PRODUCTION.  [BOOK  II. 

traits  has  been  extended  sufficiently  to  account  for  much 
of  the  inequality  which  exists  in  the  distribution  of  manu- 
factures among  the  nations  of  the  civilized  world. 

2.  The  territorial  advantages  of  a  people,  which  are 
both  positive  and  negative  in  their  nature,  —  positive,  as  a 
people  is  endowed  with  water-power,  and  with  the  col- 
location of  necessary  materials,  as  of  ore,  coal,  and  lime  for 
making  iron ;  negative,  as  a  people  is  not  attracted  to  other 
branches  of  production  by  superior  facilities.  It  is  esti- 
mated that  Holland  has  not  agricultural  capacities  to  supply 
a  third  of  its  population.  With  some  peoples,  this  niggard- 
liness of  soil  would  have  been  a  reason  for  emigration  or 
starvation ;  but  there,  uniting  with  the  peculiar  genius  of 
the  inhabitants,  this  necessity  has  produced  a  wealthy  and 
flourishing  state.  It  has  ever  been  held  by  moral  writers, 
that  such  unkindness  of  Nature  develops  the  industrial 
energies  of  a  people,  where  it  is  not  so  extreme  as  to 
destroy  even  the  conditions  of  production.  But  the  inquiry 
is  too  abstruse  for  our  purpose. 

3.  Great  accidents,  belonging  neither  to  the  essential 
genius  of  the  people,  or  its  territorial  endowments.  Such 
are  the  transcendent  discoveries  in  the  sciences  and  the  arts. 
Such  are  wars  which  exhaust  nations,  leaving  them  weak 
for  generations.  Such  are  persecutions,  like  that  which 
scattered  over  the  continent  six  hundred  thousand  Hu- 
guenots,—  the  cunning  artisans  of  France;  like  that  which 
wrought  devastation  still  greater  in  the  "  reconciled  "  prov- 
inces of  Spain.*  Such  was  the  windfall  of  the  Indies  in 
the  lap  of  Europe.  The  desirableness  of  such  a  distribution 
of  manufactures  will  be  discussed  elsewhere.  Our  purpose 
here  is  only  to  show  by  what  means  it  comes  about  so  un- 
equally. 

Passing  now  from  this  question,  and  looking  only  to  the 
aggregate  of  such  industries,  we  find  it  to  be  small,  if  we 

*  "  Our  manufactures  were  the  growth  of  the  persecutions  in  the  Low 
Countries."  —  Edmund  Bukke,  in  his  speech  to  the  electors  of  Bristol. 


CHAP.  I.]  FORMS  OF   PRODUCTION.  29 

consider  only  the  number  of  those  employed.  But  labor 
here  acts  in  connection  with  a  greater  amount  of  capital 
than  in  agriculture,  and  avails  itself  of  more  and  mightier 
agencies  of  Nature.  The  factor  into  which  labor  is  multi- 
plied is  vastly  increased  when  we  enter  the  workshop  and 
the  mill. 

But  man  modifies  matter  or  changes  its  condition,  — 

Thirdly,  by  transportation. 

The  merchant  does  not  primarily  create  value  in  objects, 
but  enhances  that  already  existing  by  transporting  such 
objects  from  one  locality  to  another. 

The  characteristic  illustration  is  of  the  most  familiar 
kind.  Cotton  bought  at  New  Orleans,  in  1860,  for  twelve 
cents  per  pound,  transported  to  Liverpool,  would  have  sold, 
say,  for  fifteen  cents.  By  his  capital  and  skill,  the  mer- 
chant has  added  twenty-five  per  cent  to  the  value. or  ex- 
changeability of  the  cotton.  He  has  increased  the  wealth 
of  the  world  so  much.  He,  therefore,  has  produced  value. 
Such  transactions  are  useful  alike  to  the  producer  and  to 
the  consumer  of  the  articles  transported. 

In  so  far  as  the  transportation  of  products  gives  them 
value,  it  belongs  to  the  present  general  division  of  the  sub- 
ject ;  but  its  methods  and  agencies  are  so  unlike  those  of 
the  other  forms  of  production,  it  is  governed  by  laws  so 
peculiar  and  complete  in  themselves,  it  composes  so  large 
and  easily  separate  a  department  of  inquiry,  that  it  is,  for 
the  discussion  of  its  principles,  placed  as  a  general  division 
of  the  science  under  the  title  of  "  Exchange."  To  complete 
the  sphere  of  production,  we  recognize  here  the  share  it  has 
in  creating  values  ;  but  the  means  by  which  this  is  effected, 
and  the  impressive  phenomena  exhibited  in  the  operation 
of  this  agency  throughout  the  entire  world,  are  set  apart 
for  special  consideration. 

We  have  thus  gone  through  the  three  forms  in  which  man 
modifies  matter  to  create  values,  —  transmutation,  trans- 
formation, and  transportation.     The  inquiry  will  at   once 


30  PRODUCTION.  [HOOK   II. 

occur,  whether  these  exhaust  all  possible  efforts  in  pro- 
duction. The  answer  may  come  out  more  clearly  if  we 
proceed  by  an  illustration. 

The  chemist, — what  is  his  position  in  the  world  of  val- 
ues ?  He  has  been  ranked,  by  some  scientific  writers,  among 
the  agricultural  class,  because  he  so  aids  and  directs  the 
processes  of  Nature  as  to  produce  objects  of  value  by  chang- 
ing the  elementary  powers  of  acids  and  alkalies  into  salts, 
&c.  That  is,  he  transmutes.  It  seems  more  accurate  to  say, 
that  he  belongs  among  producers  just  so  far  as  he  assists  in 
any  one  of  the  three  forms  defined.  He  works  by  the  side 
of  the  agriculturist,  helping  how  best  to  direct  the  labor  of 
the  farm.  Here  the  chemist  produces  value.  He  works  by 
the  side  of  the  manufacturer,  with  lubricants  and  solvents, 
removing  obstacles  which  no  muscular  strength  could  shake ; 
and  here,  again,  he  produces  values.  He  may,  also,  labor 
by  the  side  of  the  merchant,  making  much  cunning  use  of 
Nature ;  and  here,  again,  he  produces  values,  in  the  form 
of  transportation.  From  each  he  receives  remuneration  in 
proportion  as  he  renders  service. 

The  division  we  have  made  of  production  into  three 
modes  seems  to  afford  the  best  view  attainable  of  the  sub- 
ject. It  will  be  observed,  that  these  are  not  distinct  forms 
in  which  labor  appears,  as  in  so  many  moulds  ;  but  that  they 
result  from  an  arbitrary  classification  of  individual  efforts, 
according  to  the  best  reason  of  the  case.  The  whole 
authority  of  such  a  classification  consists  in  this, — that  it 
is  more  complete  and  definite  than  any  other  which  is 
offered. 

All  these  forms  of  productive  effort  may  be  united  in  a 
single  commodity ;  and,  indeed,  there  are  but  few  products 
which  do  not  contain  them  all.  To  the  agriculturist  has 
been  attributed  the  work  of  transmutation.  Yet,  practi- 
cally, he  performs  every  function  of  human  labor ;  and, 
directly  or  indirectly,  uses  nearly  every  known  agency  of 
Art  or  Nature.     The  manufacturer  has  the  work  of  trans- 


CHAP.  II.]      CONDITIONS  OP  THE   HIGHEST  PRODUCTION.  31 

formation ;  but  he  can  only  create  values  by  mingling  his 
labor  with  that  of  the  agriculturist  and  the  merchant,  and 
thus  the  final  product  is  the  property  of  all.  By  what 
principle,  and  through  what  force,  the  remuneration  of 
each  is  determined,  will  appear  under  the  title  of  "  Distribu- 
tion." Such,  then,  are  the  general  forms  in  which  man 
puts  forth  his  efforts  for  the  satisfaction  of  his  desires. 


CHAPTER  II. 

CONDITIONS   OP  THE   HIGHEST   PRODUCTION. 

If  labor,  through  some  form,  produces  all  wealth,  we  are 
led  to  inquire  into  the  circumstances  and  conditions  that 
increase  or  diminish  the  efficiency  of  this  great  force. 
That  there  are  mighty  variations  as  it  appears  in  different 
countries,  and  even  in  adjacent  communities,  is  so  manifest 
as  hardly  to  require  mention  or  illustration. 

If  the  wealth  of  any  nation  cannot  be  determined  merely 
by  the  proportion  of  its  population  to  that  of  the  world,  or 
of  its  territory  to  the  general  mass  of  the  globe,  —  as  it 
clearly  cannot,  —  the  question,  Why?  introduces  us  to  the 
discussion  of  all  those  influences  which  directly  or  indi- 
rectly, immediately  or  remotely,  make  one  to  differ  from 
another.    These  may  be  classed  as  follows:  — 

Division  of  Labor. 
Co-operation  of  Capital. 
Economic  Culture. 


32  PRODUCTION.  [BOOK   II. 


CHAPTER   III. 

DIVISION     OF    LABOR. 

In  some  countries,  a  man  wishing  for  a  chair  goes  into  the 
forest,  fells  a  tree,  carries  the  timber  to  his  workshop,  forms 
the  parts,  and  puts  them  together  into  a  chair.  It  is  a 
rude  and  imperfect  article,  but  it  has  cost  him  the  labor  of 
two  days. 

In  other  communities,  we  find  a  chair,  equally  service- 
able and  far  more  elegant,  produced  by  the  labor  of  half  a 
day.  Here  one  man  cuts  the  timber,  another  transports 
to  the  mill,  another  saws  it  into  suitable  dimensions,  an- 
other forms  the  legs,  another  the  seat,  another  the  back, 
another  puts  the  parts  together,  while  still  another  paints 
it.  A  great  many  chairs  are  produced  by  the  combined 
labor  of  many  individuals  ;  and  the  result  is,  that  one  chair 
has  the  value  of  only  half  a  day's  labor.  Three-fourths  of 
the  labor  employed  in  the  making  of  chairs  is,  then,  liber- 
ated, to  rest  in  idleness,  or  to  apply  itself  to  further  pro- 
duction with  still  increasing  results,  as  the  desires  which 
control  efforts  shall  determine.  We  cannot  be  ignorant, 
that,  in  some  communities,  labor,  when  set  free,  does  waste 
itself  in  idleness  and  frolic.  But  this  is  true  chiefly  of 
those  in  which  leisure  is  bestowed,  not  by  man's  con- 
trivance, but  by  the  generosity  of  Nature.  Here  the  power 
of  labor  is  too  often  corrupted  by  the  very  luxuriance  of 
growth,  which  gives  it  great  opportunities,  and  opens  a 
world  to  its  easy  conquest. 

But  it  may  safely  be  assumed,  that  such  an  industrial 
genius  in  a  people,  as  seeks  to  lessen  present  labor  by  the 
distribution  of  its  several  offices,  will  find  fresh  objects  of 
desire.  The  very  thoughtfulness  and  care,  the  social  con- 
fidence, and  mutuality  of  service,  which  are  required  to 
effect  a  division  of  labor,  insure  such  a  susceptibility  to  new 


CHAP.  III.]  DIVISION  OF  LABOR.  33 

industrial  wants  as  shall  necessitate  the  employment  of  all 
the  labor  so  relieved. 

The  savage  who  can  provide  himself  with  clothing,  shel- 
ter, and  food  in  twenty  days  of  the  year,  may  be  willing  to 
spend  the  rest  of  the  time  in  doing  nothing.  But  it  was 
never  heard  that  men  came  together  to  do  any  thing,  and 
remain  content  to  do  nothing  more.  The  full  discussion 
and  illustration  of  this  principle,  which  governs  the  use 
of  labor  saved,  belongs  to  the  third  inquiry;  viz.,  that  of 
"  Economic  Culture."  We  have  here,  strictly,  to  show  only 
how  labor  is  saved  by  the  division  of  employments.  This 
forms  the  great  fact  of  modern  industrial  civilization.  We 
shall  find  it  the  most  important  condition  of  production, 
multiplying  all  its  powers  faster  than  the  soil  multiplies  the 
seed.  Here  is  more  of  the  explanation  of  wealth  than  can 
be  found  in  all  other  inquiries.  This  force  is  being  rapidly 
introduced  into  every  department  of  industry,  and  will 
finally  become  as  general  as  the  nature  of  the  different 
employments  will  admit.  We  do  not  find  that  it  has  yet 
reached  its  ultimate  limit  in  any  sphere  of  human  activity. 
We  shall  give  its  phenomena  and  its  principles  special  at- 
tention ;  for  the  greatest  interests  of  society,  moral  as  well 
as  economical,  connect  themselves  with  it. 

What  is  the  significance  of  division  of  labor,  as  expressed 
in  the  fewest  words  ?  It  is,  that  each  workman  confine  him- 
self to  a  single  operation. 

In  this  way,  all  great  and  successful  manufactures  are 
carried  on. 

Take,  for  illustration,  that  of  boots.  One  person  cuts  the 
fronts ;  one  crimps ;  one  cuts  in ;  one  cuts  out  the  backs, 
one  the  linings ;  one  pastes  together ;  one  strips  out  the 
sole  leather ;  one  cuts  the  soles  ;  one  makes  the  heels  ;  one 
8ticb.es  the  backs ;  one  sides  up ;  one  binds ;  one  bottoms ; 
one  buffs  ;  one  trees ;  one  packs,  marks,  &c.  Here  are  six- 
teen persons  employed  in  the  production  of  a  single  boot. 
In  many  cases,  a  still  further  division  of  the  parts  is  made 

8 


34  PRODUCTION.  [BOOK   II. 

with  success.  In  passing,  it  may  be  remarked,  that,  of  those 
operations,  seven  are  performed  by  the  aid  of  machines,  as 
distinguished  in  popular  acceptation  from  tools,  which  latter 
are  controlled  by  the  hand,  and  have  all  their  motive  power 
in  the  muscular  force  of  man. 

As  long  ago  as  Adam  Smith  wrote,  it  took  sixteen  per- 
sons to  make  a  pin. 

Such,  in  description,  is  division  of  labor.  Let  us  con- 
sider its  advantages,  limitations,  and  disadvantages. 


CHAPTER  IV. 

« 

THE   ADVANTAGES   OF   DIVISION    OF   LABOR. 

1st,  It  gives  increased  dexterity.  All  common  observa- 
tion testifies  how  rapid  and  accurate  our  motions  become, 
when  confined  to  a  single  operation.  The  juggler  is  not 
more  remarkable  for  the  nice  use  of  his  muscles,  than  is  an 
accomplished  mechanic  at  his  bench.  The  powers  of  his 
body  are  in  perfect  discipline.  They  have  learned  their 
parts,  and  obey  instantaneously  and  harmoniously.  The 
more  simple  the  movement  assigned,  the  greater  will  be  the 
efficiency  of  performance. 

2d,  It  allows  the  workman  a  better  knowledge  of  his 
business.  This  is  to  the  mental  powers  what  the  first  is  to 
the  bodily.  It  gives  intellectual  dexterity.  The  man  has  a 
mastery  of  his  special  operation.  He  knows  more  about  it 
than  if  he  had  two  things  to  think  of  and  care  for.  He 
becomes  shrewd  in  every  motion.  He  adapts  his  labor  to 
the  material ;  he  discriminates  between  the  qualities  of 
that  material.  He  meets  the  little  difficulties  of  his  work 
with  more  skill  and  less  waste.  These  two  advantages  of 
the  division  of  labor  are  shown  in  the  different  wages  which 
skilled  mechanics  obtain  as  compared  with  unskilled,  able 
seamen  with  landsmen. 


CHAP.  IV.]        ADVANTAGES   OF  DIVISION   OP  LABOR.  35 

3d,  It  saves  time,  in  passing  from  one  work  to  another. 
In  the  making  of  a  chair  after  the  primitive  fashion  we 
have  supposed,  a  great  deal  of  time  will  be  spent  in  passing 
from  one  part  of  it  to  another,  from  the  place  of  one  opera- 
tion to  that  of  another.  And,  even  where  we  suppose  a 
laborer  to  be  engaged  in  two  operations  only,  there  is  still 
a  loss  inflicted,  just  as  often  as  he  has  occasion  to  leave  one 
for  another.  It  is  not  a  loss  alone  of  the  time  physically 
necessary  in  effecting  the  transition,  but  each  operation  will 
leave  something  to  harass  the  mind  in  the  other.  During 
the  first  part,  the  attention  will  be  distracted  by  what  has 
just  been  left.  During  the  last  part,  the  attention  will  run 
on,  anticipating  what  is  to  come.  The  shadow  is  cast  both 
ways  upon  the  mind. 

4th,  It  facilitates  the  invention  of  tools  and  machines.  If 
a  treasure  of  gold  or  iron  or  oil  is  hid  under  the  ground,  the 
discoverer  is  more  apt,  other  things  being  equal,  to  be  the 
man  who  owns  the  land,  and  resides  and  works  on  it,  than 
a  casual  visitor.  So,  if  there  is  a  possibility  of  adapting 
foreign  forces  to  the  production  of  values,  the  inventor  will, 
on  the  same  condition,  more  probably  be  the  workman  than 
any  one  else  ;  he  is  constantly  engaged  upon  the  operation  ; 
he  desires,  of  course,  to  simplify  it,  since  it  is  a  law  of  mind 
to  do  as  little  work  as  possible  for  a  certain  result ;  he 
knows  the  wants  of  the  subject ;  he  knows  all  the  capabili- 
ties of  his  material ;  he  thinks  about  it  all  the  time,  and  can 
try  an  experiment  without  changing  his  place.  Therefore, 
by  the  logic  of  Nature,  he  invents.  And,  in  fact,  few  of  the 
great  aids  to  industry  have  been  discovered  by  disinter- 
ested science.  They  came  from  the  laboring  brain  of  the 
mechanic.  Where  the  work  was  almost  too  delicate  for 
human  eyes,  a  thousand  iron  fingers  go  around  to  do  it, 
never  losing  their  nimbleness,  nor  ever  getting  weary ; 
where  the  work  was  too  great  for  human  strength,  monster 
arms  swing  the  hammer,  or  toss  the  load  in  air. 

The  history   of  American   manufactures   expounds  the 


36  PRODUCTION.  [BOOK   II. 

phrase,  "Necessity  is  the  mother  of  invention."  Even  the 
slaves  of  the  South  have  been  directed  to  important  mechan- 
ical discoveries,  in  the  way  we  have  described.  One  simple 
operation,  constantly  employing  the  attention,  must,  in  time, 
lose  all  its  secrets. 

5th,  It  secures  the  better  adaptation  of  physical  and  men- 
tal abilities.  No  consideration  is  more  vital  than  this.  The 
work  which  man  finds  to  do,  the  efforts  he  has  to  make 
for  satisfactions,  however  high  his  wants  may  rise,  will  be 
of  the  most  various  character,  and  require  the  most  diverse 
powers.  There  are  operations  which  demand  great  strength  : 
others,  rapid  motion ;  others,  good  judgment ;  others,  a 
mechanical  eye ;  others,  fidelity  and  trust ;  others,  high 
intelligence  and  education.  Such  qualities,  even  those 
purely  physical,  are  not  found  equally  in  all;  nay,  by  the 
compensations  of  Nature,  they  are  generally,  though  nut 
necessarily,  found  apart.  Therefore,  unless  work  were 
divided  according  to  the  several  qualities  required,  a  defi- 
ciency in  one  would  neutralize  all  the  others,  and  exclude 
the  workman  from  employment,  or  compel  him  to  work  at 
great  disadvantage. 

The  extensive  applications  of  tins  principle  will  occur  to 
every  mind.  Each  man  finds  the  sphere  of  his  highest  use- 
fulness as  he  is  endowed  by  Nature.  Those  who  are  gifted 
with  education  and  ingenuity  devote  all  their  time  and 
energy  to  duties  appropriate  to  such  powers.  They  thus 
confer  on  others  the  advantage  of  their  own  gifts,  and  are 
themselves  spared  from  drudgery  and  uncongenial  labor. 
The  poorest  in  qualifications,  also,  find  a  place  in  which 
they  can  produce  within  the  great  partnership  of  society. 
Women  are  enabled  to  undertake  business  of  the  most  deli- 
cate and  important  character,  to  which  their  strength  is 
sufficient ;  while  children  of  all  ages  take  parts  that  would 
otherwise  occupy  men.  The  power  saved  or  gained,  by 
such  an  adaptation  of  talents  to  special  branches  of  indus- 
try, is  incalculable.     Without  it,  a  great  part  of  the  human 


CHAP.  IV.]       ADVANTAGES   OP  DIVISION   OF  LABOR.  37 

race  would  be  helpless  paupers,  and  the  remainder  would 
earn  a  scanty  and  miserable  livelihood.  Man  working  by 
himself  is  a  poacher  on  the  domain  of  Nature ;  men,  in 
industrial  society,  found  empires,  build  cities,  and  establish 
commerce. 

And  not  merely  do  all  find  in  a  proper  division  of  labor 
their  full  occupation  and  fair  reward,  but  the  work  of  each 
is  just  as  truly  productive  as  that  of  any  other.  The  boy 
who  watches  crows  does  as  much  at  that  business  as  the 
bravest  and  greatest  of  earth.  He  takes  the  place  of  some 
one  who  goes  away  to  do  a  larger  work.  In  anthropology, 
this  is  only  a  boy ;  in  political  economy,  he  is  a  man.  He 
and  the  other  make  together  two  men. 

6th,  It  increases  the  power  of  capital  in  production,  tends 
to  concentrate  manufactures  in  large  establishments,  and 
reduce  profits. 

Supposing  all  men  equally  capable  of  carrying  on  inde- 
pendent business,  which  is  not  the  case,  —  if  we  compare 
seven  men  each  with  a  capital  of  $1,000  and  one  man  with 
a  capital  of  $7,000,  we  shall  find  the  economical  advantage 
greatly  in  favor  of  the  latter.  The  former  must  do  busi- 
ness on  a  small  scale,  and  purchase  materials  in  small 
quantities.  The  latter  can  buy  at  wholesale  prices,  can 
afford  to  go  often  to  market,  and  to  keep  himself  well  in- 
formed, and  will  sell  as  well  as  buy  to  great  advantage. 

In  addition  to  this,  the  large  manufacturer  can  afford  to 
work  for  a  smaller  rate  of  profit. 

A  single  hatter,  for  example,  who  makes  only  $2,000 
worth  of  hats,  must  secure  25  per  cent,  in  order  to  have  a 
uet  income  of  $500  ;  while  the  man  who  can  make  $20,000 
worth  of  hats  will,  if  he  realize  only  12J  per  cent,  have  an 
income  of  $2,500.  A  cotton  manufacturer,  who  makes  3,000 
yards  per  day,  or  900,000  per  annum,  if  he  gets  but  half 
a  cent  per  yard  profit,  has  an  income  of  $4,500 ;  the  man 
who  makes  but  300  yards  per  day,  at  one  cent  per  yard, 
or  double  the  profit,  gets  but 


38  PRODUCTION.  [BOOK   II. 

We  see  from  these  illustrations  why  the  great  establish- 
ments drive  smaller  ones  out  of  the  market.  A  tendency 
to  a  reduction  of  profits  is  a  natural  consequence  of  this. 
Therefore,  other  things  being  equal,  it  is  desirable  that 
manufacturing  establishments  should  be  sufficiently  large 
to  secure  all  the  advantages  of  concentrated  capital,  and 
effect  the  complete  division  of  labor. 

7th,  It  shortens  apprenticeship. 

Every  art,  trade,  or  profession  must  be  preceded  by  an 
apprenticeship,  more  or  less  extended,  according  to  what  is 
necessary  to  be  learned.  A  trade,  which,  in  order  to  be 
perfectly  understood  in  all  its  parts,  requires  an  apprentice- 
ship of  seven  years,  —  if  it  be  subdivided  into  seven  different 
operations,  may,  it  is  evident,  be  obtained  with  as  great  a 
degree  of  perfection  by  an  average,  in  each  branch,  of  one 
year's  service.  Some  of  the  parts  may  require  more  than 
one  year,  others  less. 

Now,  we  find  this  to  be  practically  true ;  and  the  result  is 
a  great  saving  of  time,  and  time  is  money. 

For  example  :  — 

Seven  men  serve  seven  years  each  to  learn  to  make  hats, 
—  in  all,  a  service  of 49  years 

Seven   men   serve   one  year   each  to  learn  to  make  a 

seventh  of  a  hat,  equal  to 7     „ 

Saving  of 42  years 

in  the  mechanical  education  of  every  seven  men  employed  in  this 
manner. 

Apply  this  principle  to  the  manufacturers  of  Massachusetts,  which 
has  at  least  75,000  skilled  workmen,  and  suppose  the  apprentice- 
ship to  be  seven  years,  we  have  — 

75,000  at  7  years  each 525,000  years 

75,000  at  1  year  each 75,000     „ 

Saving  of 450,000  years 

in  one  generation  of  skilled  workmen. 

It  will  be  observed  that*  these  are  years  of  apprenticeship, 


CHAP.  IV.]        ADVANTAGES   OF  DIVISION   OF  LABOR.  39 

not  of  labor.  In  considering  what  is  the  saving  to  the 
wealth  of  the  country,  we  must  estimate  the  amount  of 
values  created  by  these  workmen  during  the  apprenticeship 
under  the  first  system  supposed.  Per  contra,  we  must  take 
into  account  the  greater  amount  of  material  destroyed  in 
teaching  each  man  to  do  all  the  parts,  and  the  greater  inter- 
ruption of  the  employer  or  journeyman. 

If  we  suppose  these  years,  saved  from  apprenticeship, 
to  have  an  average  value  of  $200,  we  have  a  saving  of 
$90,000,000  for  each  generation  of  skilled  workmen  in  Mas- 
sachusetts. 

The  principle,  under  which  this  saving  of  time  is  made, 
cannot  be  disputed. 

8th,  It  gives  opportunity  for  greater  social  development, 
and  increases  the  social  power  of  labor. 

This  is  immediately  of  moral  interest ;  but  it  has  impor- 
tant economic  bearings.  The  principle  itself  is  indispu- 
table. Not  only  is  the  workman  brought  near  his  fellows, 
and,  by  such  contact,  stimulated  to  industry,  to  acquisition, 
to  taste ;  not  only  does  such  association  of  purposes  and 
means  afford  more  of  the  instruments  of  intellectual  ad- 
vancement, —  schools,  lectures,  churches,  journals  ;  not  only 
does  the  close  neighborhood  of  mind  quicken  and  brighten 
all  the  faculties,  teaching  by  example,  and  firing  by  con- 
troversy ;  but,  by  such  association,  workmen  are  brought 
nearer  their  employers,  have  a  greater  sympathy  and  co- 
operation, act  intelligently  and  harmoniously  as  to  their 
rights,  and  form  a  public  opinion  among  themselves  which 
has  often  been  found  a  great  power,  economically  and  civilly. 
Such  an  association,  moreover,  brings  the  workman  nearer 
the  government  and  the  public  force ;  sometimes  for  evil, 
but  often  for  good.  A  population  thus  concentrated  is 
capable  of  prodigious  impulses.  All  the  artisans  of  the 
empire  are  not  equal  to  the  mob  of  the  capital.  Govern- 
ment knows  and  respects  the  power  of  this  class,  no  matter 
how  fully  disfranchised  it  may  be  in  the  law 


40  PRODUCTION.  [book  n. 

CHAPTER  V. 

THE  LIMITATIONS   TO   THE   DIVISION   OP  LABOR. 

But  the  great  principle  of  division  of  labor,  so  very  bene 
ficial  in  its  operations,  is  yet  limited  by  certain  conditions, 
which  it  cannot  disregard. 

1st,  When  the  principle  has  been  so  far  applied  that  each 
operation  has  been  made  as  simple  and  fully  a  unit  as 
human  ingenuity  can  devise.  Beyond  this,  there  is  no 
division,  but  only  repetition.  Any  attempt  to  refine  the 
process  so  far  as  to  give  the  workman  less  than  one  natu- 
rally complete  motion  of  the  body,  will  only  embarrass  and 
delay  industry. 

2d,  When  the  concentration  of  capital  has  become  so 
great  that  interested  personal  supervision  cannot  be  brought 
to  bear  upon  each  department,  and  upon  the  whole  enter- 
prise," with  sufficient  intensity  to  insure  efficiency  and  fidelity 
on  the  part  of  those  employed,  and  harmony  in  the  general 
conduct  of  the  business.  Beyond  this  point,  the  advantages 
derived  from  the  power  of  concentration  are  neutralized.  It 
may  even  become  mischievous.  It  is  well  that  there  should 
be  limitations,  because  they  prevent  such  aggregations  of 
capital  as  would  swallow  up  the  whole  industry  of  a  state. 
Experience  shows  that  the  greatest  establishments  are  not 
always  or  generally  the  most  profitable.  Those  which  are 
large  enough  to  secure  all  the  real  advantages  of  concen- 
trated capital  and  combined  effort,  yet  are  small  enough  to 
be  brought  under  direct,  personal,  interested  supervision, 
are  the  most  beneficial  to  their  owners  and  the  public. 

3d,  Where  the  industry  consists  of  an  indefinite  number 
of  parts,  yet  the  special  circumstances  will  not  allow  each 
workman  profitable  employment  in  a  single  operation,  —  for 
example,  agriculture  in  most  of  its  branches :  first,  from 
the  fact  that  its  operations  cannot  be  sufficiently  localized ; 


OHAP.  V.]        LIMITATIONS  TO   DIVISION   OP  LABOR.  41 

and,  second,  from  the  necessities  of  the  seasons.  No  depart- 
ment is  '  capable  of  so  much  subdivision  as  this ;  yet,  in 
practice,  none  experiences  so  little.  In  mining,  the  fish- 
eries, and  many  incidental  matters,  it  is  effected  to  a 
considerable  extent ;  but,  in  most  of  the  parts  of  pure 
agriculture,  it  has  very  limited  range.  Boys  and  women 
are  indeed  made  useful  in  it,  but  they  have  not  the  same 
continuous  and  profitable  employment  as  in  manufactures. 
Nor  does  their  work  correspond  precisely  with  what  is 
required  in  our  definition  of  the  division  of  labor.  They 
are  occupied,  generally,  not  in  one  operation  so  much  as  in 
a  miscellaneous  class  of  light  duties,  too  variable  to  realize 
the  dexterity  and  thoroughness  obtained  elsewhere. 

There  are  other  instances  which  seem  to  approach  near 
to  the  conditions  of  the  highest  efficiency.  Some  persons 
are  employed  for  an  entire  community  to  plant,  to  graft,  or 
to  team ;  but  not  only  does  the  extent  of  territory  limit 
their  application  to  a  single  pursuit,  but  the  change  of  the 
seasons  drives  them  from  one  to  another  almost  every 
month.  Stock-raising,  and  gardening  for  large  markets, 
afford  the  best  American  example  in  agriculture ;  yet  each 
of  these  is  not  only  a  considerable  department  in  itself, 
but  whoever  engages  in  either  of  them  must  do  much 
not  directly  connected  with  it. 

The  culture  of  the  grape  realizes,  perhaps,  as  fully  the 
mechanical  advantage  of  division  of  labor  as  any  in  agri- 
culture. 

But,  generally  speaking,  the  farmer  is  a  laborer  of  a 
thousand  duties. 

This  fact  alone  does  not  account  for  the  different  pro- 
ductiveness of  the  manufacturing  and  the  agricultural  inter- 
ests. In  the  nature  of  their  objects,  it  is  found  that 
machinery  must  be  applied  to  them  in  far  different  propor- 
tions. The  mechanic  arts,  which  can  be  localized  to  the 
highest  degree  of  concentration,  and  made  general  to  all 
seasons  of  the  year,  admit  also  of  prodigious  multiplication 


42  PRODUCTION.  [BOOK   II. 

by  artificial  agents.  From  these  considerations,  we  deduce 
the  principle,  that  the  value  of  agricultural  products,  as  a 
class,  —  that  is,  their  power  in  exchange  for  products  other 
than  agricultural,  —  will  be  constantly  increasing.  A  bushel 
of  corn,  in  1820,  would  purchase  only  four  yards  of  cotton 
cloth.  In  I860,  it  would  purchase  ten  yards  of  the  same 
or  better  quality.  This  difference  will  continue  to  grow 
wider  and  Avider  as  the  mechanic  arts  advance ;  but  not 
indefinitely,  inasmuch  as  the  materials  of  manufactures  are 
always  themselves  of  agricultural  origin,  and  hence  the 
depreciation  of  the  price  is  limited. 

We  have  thus  far  spoken  of  the  division  of  labor  as 
applied  only  to  direct,  material  production,  affecting  the 
laboring  classes,  and  those  immediately  superintending 
them ;  but  the  principle  has  been  extended  to  mental  labor, 
as  well  as  that  which  is  simply  muscular. 

The  professions  known  as  the  learned,  and  others  which 
have  an  important  though  indirect  agency  in  production 
(for,  unless  they  have  some  agency  in  production,  we  have 
nothing  to  do  with  them  here),  naturally  divide  themselves 
into  branches  more  or  less  numerous  and  special,  as  occa- 
sion offers.  The  recognition  of  professions  and  industrial 
classes  is  itself  a  tribute  to  the  great  principle  of  the  divis- 
ion of  labor ;  but  it  proceeds  still  further,  to  assign  special 
functions,  within  those  professions  and  classes,  to  individual 
members. 

Thus  the  law,  when  a  sufficient  concentration  of  legal 
labor  is  secured,  branches  into  the  departments  of  titles 
and  conveyances,  of  insurance,  of  marine  losses,  forfeiture 
and  salvage,  of  patents,  of  criminal  jurisprudence,  &c.  In 
medicine,  the  eye,  the  ear,  the  skin,  consumption,  fevers, 
cancers,  have  each  their  own  practitioners. 

That  science  and  skill  are  promoted  by  such  subdi- 
vision, and  that  the  immediate  efficiency  of  professional 
labor  is  greatly  increased  thereby,  cannot  be  intelligently 
questioned. 


CHAP.  VI.]      DISADVANTAGES   OP  DIVISION   OP  LABOR.  43 

As  any  community  advances  to  a  higher  civilization, 
specialties  are  more  and  more  resorted  to.  Individuals, 
finding  themselves  peculiarly  adapted  by  their  talents  and 
tastes  to  a  particular  calling,  or  having  unusual  advantages 
for  the  pursuit  of  it,  give  themselves  up  to  that  object. 
They  concentrate  upon  it  their  thoughts,  their  time,  and 
their  resources.  They  excel.  They  know  more,  and  can 
do  better,  in  their  chosen  line  than  those  about  them.  This 
gives  them  position  and  power.  They  are  sought  for,  are 
looked  to,  because  they  have  something  that  is  wanted.  No 
matter  how  humble  his  station,  or  how  minute  his  field  of 
investigation,  if  a  man  understands  something  perfectly,  his 
world  —  whether  a  hamlet  or  an  empire  or  the  race -2- will 
resort  to  him.  He  becomes  a  benefactor  of  society.  He 
receives  its  honors  and  rewards.  There  is  no  person  in 
any  position  in  life,  however  exalted  or  lowly,  who  may  not 
advantageously  cultivate  a  specialty. 


CHAPTER  VI. 

THE   DISADVANTAGES   OP  THE   DIVISION   OP  LABOR. 

1st,  It  tends  to  enervate  the  laborer,  because  it  does  not, 
as  a  general  fact,  give  full  activity  and  development  to  all 
the  functions  of  the  body. 

We  shall  proceed  to  show  that  this  is  true  of  those  classes 
who  perform  what  we  have  designated  as  material  labor, 
while  the  very  distinction  of  mental  labor  implies  such  a 
separation  between  the  natural  functions  as  seems  not  to 
consist  with  the  best  physical  condition  of  those  engaged. 
Common  observation  will  affirm  that  this  is  strikingly  true. 
It  is  not  necessary,  but  the  tendency  exists. 

In  the  material  occupations,  it  is  found  that  confinement 
to  a  single  operation  is  ofton  highly  injurious.     There  are 


44  PRODUCTION.  [BOOK   II. 

forms  of  labor  which  sufficiently  exercise  the  several  parts 
of  the  body.  The  mere  fact  of  uniformity  of  motion  brings 
no  objection  to  such  as  these.  But  there  are  those  which 
require  the  constant  fatiguing  use  of  some  member,  to  the 
injury  of  the  rest  of  the  body ;  others  require  a  cramping 
posture  that  oppresses  and  disorders  the  vital  organs; 
others  still  require  the  workman  to  poison  his  blood  with 
unwholesome  gases.  In  the  great  centres  of  capital  and 
labor,  —  whether  we  regard  the  mill,  or  that  larger  mill, 
the  city  itself,  —  it  is  notorious  that  distortion,  paralysis, 
and  organic  feebleness,  are  more  common  than  where  labor 
is  diffused,  and  the  laborer  changes  his  work  and  his  place 
frequently. 

That  this  will  occur  in  the  course  of  all  manufacturing 
industry  is  probable.  That  it  is  inevitable  does  not  so 
clearly  appear.  The  sanitary  arts  keep  even  pace  with  the 
advance  of  machinery.  The  civil  war  in  America  developed 
astonishingly  the  resources,  which  are  at  the  command  of 
government,  to  suppress  malaria,  and  reform  the  habita- 
tions of  disease.  The  growth  of  manly  sports,  and  the 
cultivation  of  gymnastics  for  health's  sake,  are  likely  to 
work  a  great  change  for  the  better  in  the  sanitary  conditions 
of  our  people.  The  intelligent  precaution  of  operatives  in 
every  country,  where  their  remuneration  is  any  thing  less 
than  robbery,  can  guard  against  all  excessive  derangement 
of  the  bodily  functions. 

It  is  perhaps  significant  to  the  question  whether  the 
application  of  the  bodily  powers  to  a  single  continuous 
action  is  really  in  practice  injurious,  that  we  find  in  the 
statistics  of  Massachusetts,  ranging  over  sixteen  years, 
the  average  life  of  "  laborers  having  no  special  trades  "  to 
be  less  by  two  years  than  that  of  "  active  mechanics  in 
shops." 

Mechanical  operations  were  formerly  considered  as  dis- 
qualifying for  military  service ;  and  even  our  modern  phi- 
losophy has  found  in  them  a  reason  for  the  employment  of 


CHAP.  VI.]      DISADVANTAGES  OF   DIVISION   OP  LABOR.  45 

mercenaries,  and  the  maintenance  of  standing  armies.  But 
the  great  civil  war  just  referred  to  exhibited  the  novel  fact, 
that,  beyond  all  dispute,  the  troops  raised  in  agricultural 
districts  are  not  so  hardy  in  the  privations  and  exposures  of 
camp  and  field  as  those  coming  from  the  towns.  This  does 
not,  however,  imply  a  better  state  of  health  at  home.  It 
may  be,  that  the  latter  class  find,  in  the  constant  exercise 
and  the  out-door  employment,  just  that  change  of  habit  and 
condition  which  they  needed.  All  that  is  different  from 
their  usual  course  of  life  is  in  the  direction  of  more  air  and 
light  and  motion ;  while  the  agricultural  laborers  find  no 
change  except  for  the  worse.  They  have  been  accustomed 
to  active  employment ;  but  the  harsh  necessities  of  the  ser- 
vice come  to  them  fresh  and  strong.  It  is  perhaps  the 
direction  of  influences  more  than  the  degree  of  them  which 
determines  these  matters  of  health ;  or  it  may  be,  that 
mechanical  occupations,  contrary  to  general  opinion  and 
in  spite  of  some  plain  drawbacks,  do  tend  to  compact  the 
frame  and  the  sinew,  and  lend  force  and  vitality  to  the  or- 
gans. Whatever  the  explanation,  we  will  rest  with  the  fact, 
that,  in  the  severe  trial  of  strength  and  endurance  made  by 
the  war,  the  mechanical  occupations  have  not  been  dis- 
credited. 

2d,  This  system,  in  some  of  its  applications  and  in  certain 
degrees  of  extension,  does  not  give  that  full  employment 
and  expansion  to  all  the  powers  of  the  mind  which  its  nor- 
mal development  requires.  This  is  obvious.  The  mind,  if 
intensely  devoted  for  a  whole  life  to  a  single  effort,  and  that 
perhaps  of  the  most  simple  kind,  cannot  but  be  unfavorably 
affected.  Unless  counteracting  influences  are  resorted  to, 
it  will  undoubtedly  be  contracted  and  enervated. 

To  this  liability  are  opposed  three  compensations  :  — 

a.  The  great  communicativeness  observable  in  such  cir- 
cumstances, the  eager  discussions,  the  free  inquiry,  the 
school,  and  the  lyceum. 

h.  The  saving  principle  that  the  employment  of  one  mem- 


46  PRODUCTION.  [BOOK   II. 

her  is,  to  a  certain  extent,  the  employment  of  all.  The 
human  faculties,  mental  and  physical,  arc  a  knot.  They 
interpenetrate  so  completely  that  it  is  impossible  to  move 
one  without  affecting  the  rest.  If  we  compare  the  mind  to 
a  reservoir,  we  may  say  that  the  individual  powers  and  dis- 
positions flow  out  of  it  as  so  many  streams ;  but  there  is 
nothing  to  prevent  them  from  flowing  back,  if  the  level  is 
sufficiently  disturbed.  The  special  use  of  one  may  develop 
it  greatly ;  make  it  more  strong  and  active  than  the  others. 
But  such  a  predominance  is  not  distortion.  Few  minds  are 
capable  of  even  and  temperate  growth.  In  this  principle 
resides  the  variety  of  human  character.  It  may  be  ques- 
tioned whether  any  but  the  most  gifted  can  be  educated  in 
any  other  way  so  thoroughly  and  efficiently  as  by  interested 
application  to  some  single  matter.  Generalization  and  broad 
philosophy  rouse  the  full  powers  of  but  few  intellects.  In 
the  majority  of  cases,  it  will  remain  true  that  intense,  spir- 
ited, persistent  labor  directed  to  one  point  is  better  than  the 
languid,  nerveless,  unspurred,  rambling  play  of  all  the  fac- 
ulties. Mind,  to  be  energetic,  must  not  be  republican.  The 
powers  must  be  centralized.     Some  must  be  despotic. 

Indeed,  the  argument  against  division  of  labor  on  this 
score  would  be  better  expressed  by  saying,  that  the  constant 
repetition  of  single  acts  so  far  dispenses  with  thought,  and 
even  with  consciousness,  in  the  operation,  that  it  makes  man, 
in  some  sense,  a  machine.  This  is,  to  a  considerable  extent, 
true ;  the  compensation  being  that  it  affords  a  greater  op- 
portunity for  discussion  and  reflection,  if  the  workman 
chooses  to  avail  himself  of  the  kind  of  mental  leisure  which 
is  afforded  by  the  monotony  of  his  occupation.  It  is,  there- 
fore, not  the  excessive  use,  but  the  disuse,  of  the  intellect- 
ual faculties,  that  is  to  be  feared  in  those  arts  to  which  labor 
has  been  carried  to  its  fullest  division. 

c.  The  laborer  is  not  all  workman.  While  his  special 
occupation  provides  for  his  subsistence,  and  endows  him 
with  energy,  industry,  and  concentrativeness  of  mind  and 


CHAP.  VI.]      DISADVANTAGES   OP   DIVISION   OP  LABOR.  47 

character,  he  has  other  hours  and  other  duties,  ample,  if 
reasonably  used,  to  compensate  for  all  the  evil  mental 
effects  of  his  continuous  toil. 

It  will  be  observed,  that  it  is  only  to  the  division  of  labor 
beyond  a  certain  point,  that  the  objections  we  have  discussed 
have  any  application.  A  more  ill-developed  society,  with 
more  ill-developed  members,  could  not  be  conceived  than 
where  this  principle  was  not  applied  at  all.  In  fact,  there 
could  be  neither  members  nor  society ;  but  here  and  there  a 
savage  would  bask  in  the  summer  sun,  or  hide  himself  in 
the  storms  of  winter,  in  hopeless,  helpless  barbarism. 

However  we  may  speculate,  a  priori,  on  the  consequences 
of  dividing  minutely  the  parts  of  labor,  we  may  perhaps 
get  a  stronger  light  and  a  better  view  by  observing  the 
mightiest  experiment  of  industry  ever  known  in  the  world, 
—  that  of  England  to-day.  Nowhere  are  the  natural  advan- 
tages of  agriculture  more  apparant ;  nowhere  has  manu- 
facturing been  more  elaborated.  Yet  no  person  can  be 
cognizant  of  the  condition  of  the  English  population,  with- 
out being  assured  that  the  manufacturing,  laboring  class  is 
almost  immeasurably  above  the  agricultural  in  intelligence, 
in  independence  of  character,  and  obedience  to  law.  Prob- 
ably the  most  conservative  nobleman  of  the  realm  would 
admit  that  the  former  class  is  far  better  qualified  for  the 
franchise  than  the  latter. 

3d,  It  will  follow,  from  what  has  been  already  urged,  that 
division  of  labor,  in  its  greatest  extension,  has  a  tendency, 
or  at  least  there  is  found  in  it  a  liability,  to  lower  the 
average  of  health,  to  shorten  life,  and  prevent  the  natural 
increase  of  population. 

All  these  results  are  found,  on  examination,  more  or  less, 
but  still  above  the  general  facts  of  the  country,  in  all  the 
great  centres  of  manufacturing  industry,  where  the  full  pos- 
sibilities of  the  mechanic  arts  are  realized  by  the  intense 
subdivision  of  labor.  This  result  can  only  be  partially  and 
confusedly  shown  by  statistics :    still  enough  can  be   ex- 


48  PRODUCTION.  [BOOK   II. 

tracted  to  assure  us  that  there  is  a  great  loss  of  vital 
energy,  whether  or  not  it  is  necessary  to  such  a  state  of 
industry. 

The  American  average  of  life  may  be  expressed  nearly  as 
follows :  *  — 

Cultivators  of  the  earth 64  years. 

Active  mechanics  out  of  shops    ....  50      „ 

Active  mechanics  in  shops 47^   „ 

Inactive  mechanics  in  shops 41  £    „ 

Laborers,  no  special  trades 45  \   „ 

These  statistics,  accurately  gathered  and  showing  the 
results  of  many  years,  require  "  correction  "  in  several  par- 
ticulars, if  the  real  lesson  of  them  is  to  be  obtained.  In 
the  first  place,  two-thirds  of  the  class  of  mechanics  as  pre- 
sented here  are  engaged  in  such  occupations  as  do  not 
allow  any  very  extended  subdivision  of  the  parts,  so  that 
the  average  of  the  great  manufacturing  establishments  and 
their  dependent  cities  would  be  found  still  more  striking. 
In  the  second  place,  the  agricultural  occupations  are  con- 
tinually making  contribution  to  manufactures  of  their  best 
blood  and  bone,  renewing  the  natural  waste  of  the  mill  and 
shop,  and  so  interfering  with  the  statistics  of  the  subject. 
This  element  can  neither  be  eliminated  nor  determined. 
We  shall  rest  satisfied  with  knowing  it  is  there.  So  impor- 
tant is  it  at  times,  that  Lowell  appears  on  the  tables  as  one 
of  the  healthiest  cities  of  America.  It  is  unquestionably 
true  that  much  of  the  historical  feebleness  and  mortality  of 
such  places  has  been  avoided  by  more  humane  and  intelli- 
gent precautions,  by  gymnastic  sports  and  out-door  games, 
aud  by  a  better  adaptation  of  all  the  conditions  of  prodtic- 
tion  to  the  necessities  of  life  and  well-being.  But  the  great 
fact  which  accounts  for  this  seeming  healthfulness  of  a 
manufacturing  city  is  the  constant  infusion  of  the  fresh, 
vigorous,  young  blood  of  the  country. 

•  Massachusetts  Begistration  of  Births,  Deaths,  and  Marriages. 


CHAP.  VI.]      DISADVANTAGES   OF  DIVISION   OF  LABOR.  49 

It  is  not  necessarily  a  disadvantage  in  this  respect,  that 
manufactures,  in  their  greatest  centralization,  prevent  the 
full  natural  increase  of  population.  Indeed,  it  is  a  bene- 
ficent provision  of  Nature  which  checks  propagation  in 
precisely  those  circumstances  where  the  offspring  is  less 
likely  to  receive  that  nourishment  and  care  and  exercise 
which  shall  secure  its  best  development.  Far  from  being  a 
misfortune,  it  is  well  that  those  who  are  to  live  in  the  cities 
should  be  born  in  the  country,  and  get  size  and  strength  on 
the  hills  and  in  the  open  air.  This  tendency  does  not  go 
so  far  as  to  deprive  the  dwellers  in  the  cities,  and  the  work- 
ers in  brass  and  wool,  of  the  cares  and  the  pleasures  and 
the  culture  of  paternity.  Yet  the  law  that  men  shall  be 
born  upon  the  land  is  as  clear  in  history,  and  in  our  com- 
mon observation,  as  any  fiat  of  Nature. 

4th,  The  division  of  labor  lessens  the  number  of  those 
who  do  business  on  their  own  account.  This  is  a  natural 
consequence  of  what  has  been  shown.  We  have  said  that 
capital  has  a  tendency  toward  concentration ;  and,  if  it  be 
aggregated,  labor  must  also  be.  The  result  of  this,  in  agri- 
culture, is  to  absorb  the  yeomanry  into  the  class  of  those 
who  labor  by  the  day  or  month,  with  no  interest  in  the 
land.  The  result  in  manufacturing  is  to  subordinate  hun- 
dreds of  operatives  to  the  control  of  a  single  will.  This 
has  a  threefold  relation :  a.  To  the  formation  of  character. 
Something  of  independence  and  self-respect  is  unquestion- 
ably lost,  so  far  as  these  depend  on  external  conditions. 
Position  and  responsibility  do  foster  and  strengthen  man- 
liness and  self-mastery.  By  the  division  of  labor,  the 
independence  of  each  is  sacrificed  to  the  good  of  all.  It 
will  not  be  doubted,  that,  on  the  whole,  it  is  desirable  that 
it  should  be  so  ;  nor  can  it  be  denied  that  there  are  partial 
drawbacks,  even  in  this  plain  tendency  of  civilization.  It 
is  the  sacrifice  man  has  to  make  in  society,  in  industry,  in 
government,  b.  To  the  fairness  of  remuneration.  A  very 
few  now  participate   in   the   profits.     The  great  bulk  of 

4 


50  PRODUCTION.  [BOOK  II. 

workmen  receive  only  wages,  and  that  on  temporary  engage- 
ments. This  disproportion  may  be  excessive,  and  is  likely 
to  be  where  laws  or  institutions  check  enterprise,  and 
discourage  individual  effort.  In  such  cases,  laborers  are 
practically  a  herd  of  cattle,  driven  about  from  place  to  place, 
receiving  bare  subsistence,  and  unable  to  mend  their  con- 
dition. This  is  a  lamentable  state  of  things ;  an  abuse  of  a 
good  principle.  No  one  can  deny,  however,  that  the  worst- 
treated  operatives  of  the  civilized  world  receive  infinitely 
more  than  if  the  efforts  of  men  were  all  individual  and 
independent,  and  each  was  left  to  satisfy  his  wants  from 
the  primitive  resources  of  Nature.  But,  even  if  we  come 
forward  from  the  barbarous  state  to  that  in  which  the  work 
of  man  has  divided  itself  into  numerous  trades,  each  of 
these,  however,  yet  remaining  distinct,  and  compare  this 
with  the  present  state,  in  which  trades  have  been  repeatedly 
subdivided,  —  capital  aggregate  and  labor  subordinate, — 
we  shall  yet  find  that  the  share  of  the  poorest  laborer  in  the 
mighty  product  of  our  industry  of  to-day  is  greater  than 
ever  before.  Augustus,  says  Arbuthnot,  had  neither  glass 
to  his  windows  nor  a  shirt  to  his  back. 

Thus  much  could  be  urged  of  the  wretchedest  operatives 
on  the  earth ;  but,  when  we  regard  the  condition  of  labor 
as  it  exists  in  nearly  all  the  countries  of  the  world,  we  shall 
quickly  confess,  that,  though  the  laborer  has  given  up  Ins 
share  of  profits,  he  receives  back,  as  wages,  far  more  objects 
of  desire  than  he  could  have  obtained  in  the  old  way.  c.  To 
the  steadiness  of  employment.  By  the  attraction  of  labor 
to  great  centres,  the  fate  of  many  laborers  is  made  depend- 
ent on  that  of  a  few  capitalists.  This  is  a  great  fact, 
scientifically  and  historically.  It  must  continue.  It  has 
issued,  in  the  past,  in  the  form  of  great  industrial  distresses, 
of  a  general  suspension  of  mechanical  labor  from  causes 
affecting  only  the  mercantile  credit  of  the  employers,  of 
frantic  appeals  for  support,  of  laws  in  which  government 
assumes  the  duty  of  providing  work  for  its  whole  popula- 


CHAP.  VI.]      DISADVANTAGES   OP  DIVISION   OP  LABOR.  51 

tion,  of  riots  and  revolution.  So  far  as  this  will  occur  in 
spite  of  prudence  and  careful  management,  it  is  the  con- 
dition on  which  we  have  the  advantages  of  division  of 
labor.  Men  cannot  cross  the  great  ocean  alone.  They 
must  go  together,  have  help  of  each  other,  and  embark 
their  fortunes  on  a  common  bottom.  More  of  them  would 
perhaps  be  safe  if  each  was  on  a  ship  of  his  own ;  but  that 
cannot  well  be. 

Even  in  regard  to  steadiness  of  employment,  the  aggre- 
gation of  capital  and  consequent  division  of  labor  assist 
the  workman  up  to  a  certain  point.  That  point  is  the  great 
catastrophe  which  no  structure  can  withstand.  Then,  the 
greater  the  structure,  the  more  completely  it  crushes  the 
laborer. 

Where  capital  is  concentrated,  it  is  stronger,  protects 
itself  better ;  and,  of  course,  the  workman  shares  in  this 
power  and  immunity.  Where  the  industry  of  thousands  is 
controlled  by  the  mind  of  one,  it  will  be  more  intelligently 
and  harmoniously  administered,  and  with  a  larger  view  of 
the  business.  By  such  superiority  of  union  in  production 
(for  that  is  synonymous  with  division  of  labor),  the  industry 
of  a  country  is  lifted  clean  over  obstacles  which  individual 
enterprise  could  not  pass, — is  preserved  amid  storms  that 
would  shatter  the  feeble  fabric  of  single  hands.  Industry 
in  masses,  when  it  receives  a  shock,  can  hold  on  to  the  accu- 
mulations of  the  past  and  to  the  credit  of  the  future,  and  so 
stands  firm. 

But  when  the  blow  becomes  so  heavy  as  to  shatter  even 
the  great  workshops  of  modern  industry,  and  they  come 
down,  then  truly  the  fall  is  great.  The  ruin  is  more  com- 
plete than  if  the  storm  had  prostrated  a  village  of  huts. 
The  reservoir  of  gathered  power  has  burst ;  the  springs 
have  long  since  been  broken  down ;  the  wells  been  filled 
up ;  and  there  iS  no  supply  for  immediate  wants.  Such  a 
loss  is  repaired  slowly.  The  trampled  grass  raises  itself, 
and  looks  up  again ;  but  the  oak  lies  as  it  falls.     Independ- 


52  PRODUCTION.  [BOOK   II. 

ent  has  been  discouraged  by  collective  industry ;  the  shop  has 
been  abandoned  for  the  mill ;  each  workman  has  learned 
only  the  fraction  of  a  trade ;  no  one  can  buy,  make,  and 
sell ;  no  one  dares  to  undertake  any  business,  foreseeing 
that  the  corporation  must  rise  again.  For  a  while,  all  is 
distress.  It  is  only  when  the  stately  fabric  of  associ- 
ated industry  is  reared  again,  that  plenty  is  known  in  the 
land. 

We  have  discussed,  somewhat  at  length,  the  relations 
which  division  of  labor  holds  to  the  condition  of  the  laborer, 
by  depriving  him  of  the  opportunity  to  do  business  on  his 
own  account.  Until  recently,  it  has  been  supposed  that 
the  advantages  of  the  principle  could  not  practically  be 
obtained  without  this  defect ;  that  capital  could  not  be  con- 
centrated, and  the  trades  perfected,  without  diminishing  the 
independence  and  self-reliance  of  labor.  But  recent  devel- 
opments seem  to  be  anticipating  the  objection.  It  is  now 
a  matter  of  common  practice  to  admit  the  laborer  to  an 
interest  in  business,  —  a  share  in  profits.  This  is  done  by 
merchants  to  their  salesmen,  by  master  mechanics  to  their 
workmen,  by  ship-owners  to  their  hands.  All  stock-com- 
panies, of  whatever  character,  admit  of  this  principle. 
Mutual  industrial  associations  for  trade,  mining,  and  insu- 
rance, furnish  its  most  significant  and  hopeful  applications. 
There  is  no  reason  why  these  should  not  be  extended  much 
further  by  a  gradual  growth,  as  they  are  found  convenient 
and  profitable.  Just  so  far  as  a  sufficient  spring  of  self- 
interest  can  be  maintained  in  the  effort,  both  of  the  employer, 
or  manager,  and  of  the  operative,  so  far  may  mutuality  of 
profits  be  applied  to  all  departments  with  the  most  bene- 
ficial results. 


CHAP.  VH.]  THE  DIVISION  OF  LABOR.  53 

CHAPTER  VII. 

THE   DIVISION   OF   LABOR    (concludecC) . 

We  have  passed  through  the  discussion  of  the  advantages, 
the  limitations,  aud  the  disadvantages  of  the  division  of 
labor. 

If,  now,  we  inquire  on  which  side  the  balance  lies,  there 
will  be  no  question  that  it  is  in  favor  of  the  application  and 
extension  of  the  law.  It  appears  as  the  great  multiplying 
power  of  modern  industry ;  it  has  made  the  difference 
between  barbarism  and  civilization ;  it  resides  in  man's 
being  as  the  principle  of  help ;  it  is  the  only  name  that 
savage  nature  fears. 

If  we  could  personify  the  forces  of  matter  and  the  treas- 
ures of  the  earth,  holding  council  how  they  might  escape 
being  enslaved  or  plundered  by  rapacious  man,  we  should 
hear  them  say :  "  Let  us  spread  disunion  among  our  foes ; 
let  us  convince  them  that  their  interests  are  separate,  and 
lie  apart ;  let  us  excite  among  them  suspicion  and  hatred. 
Then  the  summer  sun  shall  make  them  languid,  and  winter 
shall  bring  torpor  on  them.  The  waves  shall  overwhelm 
them,  struggling  singly  with  the  ocean ;  the  drought  shall 
starve,  the  snow  shall  freeze  them.  So  will  we  conquer,  and 
be  safe." 

And  indeed,  as  if  they  had  so  talked,  like  the  councillors 
of  a  state  invaded  by  a  powerful  foe,  and  had  so  planned, 
we  find  them  for  ages  deceiving  the  hearts  of  men,  sowing 
dissension,  and  enkindling  strife  by  treacherous  bounties  of 
gold  and  precious  stones,  like  bribes  sent  into  an  enemy's 
camp.  Nations  fell  to  quarrelling  about  the  accidental  and 
trivial  treasures  scattered,  in  fraud  of  their  full  rights,  upon 
their  paths.  Great  wars  were  waged  to  secure  paltry  bal- 
ances in  coin  :  wealth  of  continents  was  disregarded.  Men 
stood  over  against  each  other,  hunted  for  gold  in  the  dust, 


54  PRODUCTION.  [BOOK   II. 

neglecting  the  mighty  riches  that  lay  deep  in  the  soil. 
They  had  no  heart  to  say,  Let  us  help  each  other,  and  see 
what  we  can  do.  Whole  peoples  acted,  and  look  now  in 
history  just  as  we  imagine  miners  to  do  when  they  suspect 
the  presence  of  some  great  treasure  among  them  ;  each 
hunting  silent  by  himself,  casting  angry  glances  from  under 
steadfast  lids  ;  each  heart  beating  fast  with  fear  and  wrath 
that  some  other  may  find  it  first;  hateful  all,  and  hating 
one  another. 

That  this  sketch  is  not  exaggerated,  let  it  be  said,  to  the 
shame  of  mankind,  that  the  Mercantile  theory  was  un- 
doubted till  the  middle  of  the  last  century  ;  proclaiming  as 
truth,  and  pursuing  as  policy,  the  world  over,  the  double  lie 
that  the  only  wealth  is  gold  and  silver,  and  that  what  one 
people  gains  in  trade  another  must  lose.  So  man  had  need 
of  his  fellow  only  to  rob  him ;  so  man  had  need  of  Nature 
only  to  get  her  gold. 

Palaces  and  warehouses  floating  safely  on  the  waves ; 
breakwaters  along  the  sea ;  coast-lines  of  docks  and  wharves  ; 
arterial  railroads  to  the  length  of  the  continents ;  canals 
connecting  oceans ;  bridges  leaping  rivers ;  the  genii  of 
the  woods  groaning  in  the  windmills ;  brook-nymphs  grind- 
ing corn  in  the  valleys ;  the  spirit  of  the  air  hard  at  work 
pegging  shoes ;  mountains  of  iron  split  open ;  precious 
crystals,  forming  for  ten  million  years,  strewn  about  the 
land,  —  these  are  the  first  fruits  of  man's  confidence  in  his 
fellow. 


CHAPTER  VIII. 

THE   CO-OPERATION   OF   CAPITAL. 

This  is  the  second  grand  condition,  through  which  the 
productiveness  of  labor  is  increased. 

We  have  before  spoken  of  capital :  we  now  proceed  to 
define  it  strictly. 


CHAP.  VIII.]         THE   CO-OPERATION   OP   CAPITAL.  65 

It  is  that  portion  of  wealth  employed  in  reproduction. 

The  distinction  involved  is  an  important  one.  All  capi- 
tal is  wealth,  but  all  wealth  is  not  capital.  The  very  use 
of  the  term  "  reproduction  "  testifies  to  the  feeling  of  man 
that  the  object  of  any  thing  is  not  fulfilled  in  its  own  creation 
or  perfection,  but  that  there  is  an  endless  series  of  propa- 
gations, with  a  constant  view,  and  with  increasing  force,  to 
some  ulterior  end.  And  we  find  that  production  does  go 
forward,  not  by  the  increase  alone  of  the  laboring  class,  not 
by  mere  annual  savings  and  gross  accumulation,  but  by  the 
employment  of  that  which  before  was  an  object  of  desire  in 
itself,  as  now  a  means  to  the  gratification  of  new  desires. 
Since  it  is  recognized  that  human  wants  create  others  of 
their  kind,  and  hence  go  on  increasing  in  number  and  ur- 
gency, it  is  necessary  that  human  efforts  should  find  some 
force  having  a  corresponding  rate  of  increase,  by  which  to 
assist  themselves  in  supplying  the  growing  demand.  Such 
an  agent  is  found  in  capital,  which  is  taken  out  of  wealth. 

A  man  may  have  much  wealth,  and  use  little  capital. 
Wealth  is  as  it  is  had;  capital,  as  it  is  used.  For  example,  a 
man  may  live  in  a  house  worth  thirty  thousand  dollars,  and 
have  ten  thousand  dollars  invested  in  a  ship,  from  which  he 
derives  all  his  support,  and  which  forms  his  capital.  It 
may  be  asked,  Is  not  the  house  itself  capital  ?  It  is  so  far 
as  necessary  to  production,  in  sheltering  the  producer  and 
his  family,  even  with  the  style  and  comfort  usual  to  such  a 
degree  of  society.  Beyond  this,  it  ceases  to  be  capital.  It 
is  devoted,  not  to  the  creation  of  values,  but  to  personal 
enjoyment  and  culture ;  noble  and  worthy  ends  for  wealth, 
but  not  for  capital. 

We  may  change  the  supposition.  The  man  may  have  a 
house  worth  ten  thousand  dollars,  and  ships  to  the  value  of 
thirty  thousand  dollars.  Tho  difference  to  production  will 
be  apparent,  inasmuch  as  his  active  capital  now  consists  of 
three-fourths  of  his  wealth,  while  before  it  was  only  one- 
fourth. 


56  PRODUCTION.  [BOOK   II. 

It  will  follow  from  this  illustration,  that  there  is  much  of 
the  wealth  of  the  world  which  it  is  difficult  to  classify 
whether  as  capital  or  not,  much  in  which  the  two  ends 
unite,  much  in  which  the  share  devoted  to  reproduction  is 
doubtful.  Still,  this  casts  no  discredit  on  the  distinction 
itself,  which  stands  manifest  to  all.  There  are  many  such 
principles  in  political  economy,  the  general  direction  and 
character  of  which  cannot  be  intelligently  doubted,  yet  in 
whose  particular  applications  we  find  difficulties  and  appar- 
ent contradictions ;  just  as  tlie  mountain-ranges  stretch 
across  the  continent,  unmistakable  in  their  great  course, 
shedding  the  waters  of  one  slope  to  the  east  and  of  the  other 
to  the  west,  making  clear  separation  between  the  Flora  and 
Fauna  of  the  adjacent  countries,  and  forming  impassable 
boundaries  of  empire,  yet  are  occasionally  interrupted  by 
one  cause  or  twisted  away  by  another,  so  that  we  find  peaks 
here  and  there,  which  a  little  critic  can  take  his  stand  upon, 
and  deny  the  geography  of  the  hemisphere. 

How  does  capital  arise  ? 

From  the  net  savings  of  labor.  A  person  who  earns  five 
hundred  dollars  a  year,  and  places  one  hundred  dollars  of 
it  in  a  savings-bank,  or  invests  it  in  land  or  machinery  or 
railroad  stock,  or  anywhere  at  work,  has  increased  his  own 
capital  and  the  capital  of  the  country  by  so  much.  It  is 
not  what  he  lays  aside  for  use  in  his  own  occupation  merely, 
but  for  use  anywhere. 

All  capital  comes  in  this  way.  A  country  increases  in 
capital  just  in  proportion  to  the  increase  of  capital  accumu- 
lated by  its  members.  If  the  individuals  of  a  nation  apply 
none  of  their  net  income  to  reproduction,  there  is  no 
increase  of  the  national  capital.  If  they  withdraw  any  of 
their  capital  to  meet  personal  consumption,  the  lountry 
becomes  poorer. 

Many  of  the  considerations  which  pertain  to  the  accumu- 
lation of  capital,  and  the  ultimate  use  of  it,  belong  to  the 
discussions  of  economic  culture,  or  go  further  on,  to  the  gene- 


CHAP.  VIII.]        THE  CO-OPERATION  OP  CAPITAL.  57 

ral  division  of  "  Consumption."  We  have  simply  to  do  with 
those  principles  which  apply  existing  capital  to  the  wants  of 
present  labor. 

Capital  is  known  as  "  fixed  "  or  "  circulating." 

Fixed  capital  consists  of  every  description  of  property 
employed  in  production,  which,  from  its  nature,  cannot  be 
advantageously  changed  to  any  other  use  than  that  for 
which  it  was  originally  designed.  The  land,  buildings,  and 
tools  of  the  farmer,  the  ships  and  warehouses  of  the 
merchant,  the  machines  and  implements  of  the  manufac- 
turer, belong  to  this  class.  They  must  be  used  for  the 
purposes  to  which  they  are  particularly  adapted,  or  they 
have  little  value.  They  are  fixed.  The  ship  cannot  be 
used  as  a  wagon,  or  the  spinning-jenny  as  a  locomotive. 

Circulating  capital,  on  the  other  hand,  consists  of  those 
articles  or  commodities  which  can  be  readily  changed  from 
one  purpose  of  production  to  another.  Of  this  class  are  the 
stock  and  produce  of  the  farmer,  the  money  and  wares  of 
the  merchant,  the  raw  materials  of  the  mechanic.  These 
are  easily  transferred  from  one  business  to  another,  and 
indeed  from  one  place  to  another,  and  may  be  used  in  a 
great  variety  of  forms.  Of  all  these,  money  is  the  most 
mobile,  as  it  can  be  changed  without  delay  or  loss  to  any 
occupation  or  locality. 

Fixed  is,  in  its  nature,  more  permanent  than  circulating 
capital,  not  merely  in  its  adaptations,  for  its  name  implies 
that,  but  in  its  existence.  The  greater  part  of  circulating 
capital  —  stock  and  materials,  for  example  —  is  held  only  in 
the  immediate  view  of  transmuting  or  transferring  or  trans- 
porting it,  so  that  it  shall  pass  into  fixed  capital.  There, 
on  the  contrary,  it  has  taken  its  ultimate  form.  If  it  loses 
this,  it  is  only  by  destruction.  It  does  not  intend  to  assume 
any  higher  condition. 

It  is  in  this  way  that  fixed  capital  receives  the  mighty 
annual  additions  which  astonish  us  on  the  page  of  the 
statistician.     The   products   of  last  year  form  a  part  of 


58  PRODUCTION.  [BOOK   II. 

the  houses,  ships,  railroads,  and  machinery  of  the  present. 
The  farmer  adds  something  to  his  stock,  or  his  land,  or  his 
buildings.  The  mechanic  widens  his  shop,  and  multiplies 
his  tools.  The  merchant  enlarges  his  business,  and  extends 
his  connections.  The  laborer  saves  something  out  of  his 
wages,  beyond  the  demands  of  immediate  subsistence.  It 
is  in  this  way  that  fixed  capital  is  increased  by  the  contri- 
butions of  circulating  capital.  The  products  of  labor  are 
generally  in  this  form ;  and  it  is  enabled  to  pay  its  tribute 
without  being  itself  impoverished. 

In  popular  language,  all  wealth  is  divided  into  real  estate 
and  .personal  property.  This  distinction,  if  not  scientific, 
is  convenient  for  occasional  use.  We  must  bear  in  mind, 
however,  that,  while  all  real  estate  is  fixed,  all  personal 
property  is  not  circulating  capital.  Ships,  machinery,  and 
many  other  things  not  attached  to  the  soil,  are  personal 
property,  though  standing  in  the  category  of  fixed  capi- 
tal. 


CHAPTER  IX. 

THE   CO-OPERATION   OF   CAPITAL   (continued). 

Is  the  distinction  between  productive  and  unproductive 
capital  real  ?  It  has  been  urged  by  many  writers  at  con- 
siderable length.  It  is  susceptible  of  much  illustration.  It 
involves  many  important  considerations. 

There  is,  however,  no  such  thing  as  unproductive  capital. 
There  may  be  misapplied  wealth,  misused  wealth,  wasted 
wealth ;  but  capital  reproduces.  If  any  discrimination  is 
necessary  between  that  portion  of  wealth  which  is  applied 
successfully  to  reproduction,  and  that  which  is  intended  for 
such  an  end,  but  fails  in  attaining  it,  we  may  say  that  capi- 
tal is  that  portion  of  wealth  applied  to  reproduction,  which 


CHAP.  IX.]  THE   CO-OPERATION   OP   CAPITAL.  59 

secures  a  compensation  to  its  owner.  Whatever  his  inten- 
tion, if  he  uses  any  part  of  his  wealth  without  multiplying  it, 
it  remains  wealth ;  he  has  not  made  it  capital ;  it  may, 
by  unproductive  use,  cease  even  to  be  wealth.  Wealth 
put  into  an  enterprise  which  results  in  nothing  is  no  more 
capital  than  wealth  put  into  a  house  which  burns  down,  and 
probably  is  wealth  as  little. 

Nay,  more :  so  far  as  wealth  thus  applied,  while  making 
some  return,  fails  of  securing  the  fair,  average  remunera- 
tion of  capital,  it  so  far  ceases  to  be  capital.  It  may  be 
wealth  merged  for  a  time ;  it  may  be  wealth  lost  for  ever : 
it  is  not  capital. 

A  complete  illustration  of  this  principle  is  found  in  com- 
mon business.  Suppose  a  man  to  be  possessed  of  fifty  shares 
of  certain  stock,  par  value  one  hundred  dollars.  The  en- 
terprise does  not  succeed ;  the  stock  does  not  pay  adequate 
dividends ;  the  value  of  the  shares  has  sunk  to  fifty  dollars. 
Would  any  one  say  that  his  capital,  so  far,  was  five  thou- 
sand dollars  ?  Clearly,  it  is  but  two  thousand  five  hundred 
dollars.  Half  of  his  investment  has  been  sunk;  half  is 
capital. 

But  it  has  been  urged,  that  much  capital  is  reproductive 
that  does  not  afford  a  remuneration  to  its  owner.  For 
example :  a  railroad  is  projected  and  built,  does  not  pay ; 
its  stock  sinks  to  nothing ;  yet,  though  it  does  not  pay  divi- 
dends, it  improves  the  industry  of  the  country  through 
which  it  passes. 

We  have  nothing  to  do,  in  the  discussion  of  production, 
with  any  such  incidental  advantages,  even  if  they  exist.  It 
may  be,  that,  in  the  consumption  of  wealth,  we  shall  find 
principles  explaining  the  effects  of  such  an  investment. 

In  the  light  of  production,  however,  we  can  only  say,  that, 
in  so  far  as  the  railroad  does  not  remunerate  its  owner,  it 
ceases  to  be  capital.  So  far  as  it  is  supposed  to  promote 
agriculture  or  manufactures,  and  indirectly  help  the  indus- 
try of  the   community,  it  is  simply  on  the  level  of  the 


60  PRODUCTION.  [BOOK   II. 

gratuitous  gifts  of  Nature,  —  the  powers  of  the  wind,  rain, 
and  sun,  or  the  courses  of  streams  and  valleys  ;  assisting 
man  unquestionably,  but  having  no  value,  being  neither 
capital  nor  wealth. 

A  canal  that  does  not  pay  for  its  building  is  no  more  cap- 
ital than  a  river.  Both  may  transport  commodities  with  a 
great  saving  of  labor,  and  with  great  encouragement  to  pro- 
duction. The  world  abounds  in  natural  bridges,  causeways, 
roads,  mountain  cuts,  dikes,  &c.  If  a  man,  with  ill  advice, 
constructs  artificial  works  of  this  character,  which  prove 
failures,  he  adds  just  so  much  to  what  is  gratuitous  in  the 
world.  Economically  speaking,  it  has  ceased  to  be  prop- 
erty :  it  has  become  common. 


CHAPTER  X. 

THE   CO-OPERATION   OP   CAPITAL   (continued). 

Having  considered  the  two  great  agents  by  which  all  wealth 
is  created,  viz.  capital  and  labor,  we  come  to  speak  of  their 
union,  and  to  inquire  under  what  circumstances  it  will  be 
most  effective. 

1st,  When  a  due  proportion  of  each  is  found.  Labor 
halts  without  capital ;  capital  wastes  without  labor.  Which 
shall  govern  the  other  ?  Which  shall  be  the  fixed  quantity 
to  which  the  other  must  conform?  Labor,  certainly,  be- 
cause it  is  less  variable  in  amount.  It  can  be  diminished  or 
increased  but  slowly,  depending  as  it  does  on  the  propaga- 
tion of  the  human  race ;  an  element  that  is  determined 
positively,  in  the  old  countries,  to  a  very  gradual  growth, 
and,  in  new  countries,  has  never  more  than  doubled  itself 
in  thirty  or  forty  years.  Capital,  on  the  contrary,  is  liable 
to  very  rapid  fluctuations  ;  can  be  accumulated,  under  favor- 
able circumstances,  with  great  ease ;  and  can  be  wasted  or 
scattered  just  as  fast  under  different  conditions. 


CHAP.  X.]  THE  CO-OPERATION   OF  CAPITAL.  61 

Labor,  then,  being  that  which  is  most  restricted  in  quan- 
tity, capital  must,  in  order  to  the  highest  production, 
conform  to  it.  There  must  be  as  much  capital  as  labor 
requires,  not  as  much  labor  as  capital  needs.  We  do  not 
put  this  on  the  ground  of  any  superior  rights  of  labor.  Cap- 
ital is  the  labor  of  the  past,  and  has  rights  as  perfect  as  that 
of  the  present. 

"What  this  proportion  should  be  in  any  community,  it 
would  be  impossible  to  declare  beforehand,  as  it  is  even 
impossible  to  decide  precisely  what  it  is  in  fact.  Still  less 
could  a  proportion  be  determined  which  capital  should  bear 
to  labor  in  all  communities.  It  is  plain  that  this  will  vary 
according  to  the  occupation ;  as,  for  instance,  we  have  seen 
that  in  agriculture  there  cannot  be  so  general  application 
of  machinery  as  in  manufactures  ;  while,  on  the  other  hand, 
because  its  operations  cannot  be  localized  or  made  inde- 
pendent of  the  seasons,  the  number  of  tools  is  thereby 
greatly  increased ;  each  farmer  requiring  certain  tools,  yet 
not  using  them  to  their  full  capacity  at  any  season,  and  let- 
ting them  lie  idle  for  months. 

The  mechanic,  on  the  other  hand,  while  he  uses  a  greater 
share  of  tool-power,  has  it  yet  so  arranged  that  the  tools  lie 
idle  little  of  the  time. 

It  is  plain  that  the  proportion  will  vary,  also,  according 
to  the  natural  advantages  a  person  or  community  enjoys. 
Expensive  clothing  and  shelter  are  essential  to  the  support 
of  the  laborer  in  some  climates  ;  in  others,  a  piece  of  cotton 
cloth  and  a  bamboo  hut  serve  for  protection  the  year  round. 
In  some  countries,  there  is  required  an  immense  system  of 
pipes  and  conduits  to  water  the  soil,  barely  to  preserve  ani- 
mal life ;  in  others,  an  equable  moisture  is  preserved  the 
whole  twelve  months  without  any  application  of  capital.  In 
some,  strongly  constructed  and  carefully  coimected  dikes 
and  levees,  extending  hundreds  of  miles,  are  essential  to  the 
use  of  the  land ;  others  were  placed  high  and  dry  at  first. 
In  some,  the  soil  is  so  generous  with  fruit,  that,  "  if  you 


62  PRODUCTION.  [BOOK   II. 

tickle  Nature  with  a  hoe,  she  laughs  with  a  harvest ; "  in 
others,  the  earth  has  to  be  carried  in  baskets  up  the  sides 
of  the  mountains.  That  which,  in  one  country,  would  be 
capital,  acquired  by  labor  and  having  value,  is,  in  another, 
a  free  gift. 

For  these  and  other  manifest  reasons,  the  proportion  that 
should  exist  between  labor  and  capital  cannot  be  deter- 
mined with  any  considerable  degree  of  assurance.  It  is 
plain  that  there  should  be  as  many  tools  as  workmen  need- 
ing to  use  them,  else  some  will  stand  idle.  It  is  equally 
plain  that  an  excess  of  tools  will  not  help  at  all  in  produc- 
tion. Capital  is  the  instrument  of  labor ;  and  the  instru- 
ment should,  of  course,  be  adapted  to  the  power  of  the 
laborer  and  the  work  to  be  done. 

By  the  census  of  1860,  "  the  real  and  personal  property 
of  the  Union  was  valued  (slaves  excluded)  at  $14,183,000,- 
000."  *  A  calculation  made  at  the  Treasury  Department  es- 
timates the  products  of  1860  at  26.8  per  cent  of  the  wealth 
of  the  country  at  that  time.  Without  intending  to  vouch 
at  all  for  the  correctness  of  this  estimate,  it  is  doubtless 
approximately  true ;  and,  if  so,  we  shall  be  surprised,  if  we 
look  at  the  large  proportion  of  annual  product  to  the  accu- 
mulated wealth  of  the  nation.  If,  for  the  sake  of  conveni- 
ence, we  call  the  annual  product  25,  instead  of  26.8  per 
cent,  we  find  that  it  amounts  to  $3,545,750,000  per  annum. 
It  certainly  appears  almost  incredible  that  the  total  amount 
of  wealth  accumulated  in  the  country  since  its  first  settle- 
ment should  be  only  equal  to  four  times  the  product  in 
1860  ;  but  such  we  understand  to  be  the  statement.  If  so, 
it  shows  what  an  immense  proportion  of  all  the  wealth 
annually  produced  is  annually  consumed.  From  these  fig- 
ures, too,  we  may  make  an  estimate  of  the  proportion  of  the 
product  which  belongs  to  labor  and  capital.  Allowing  for 
the  use  of  the  latter  ten  per  cent,  in  the  shape  of  interest 
and  rent,  or  use,  the  amount  will  then  stand  thus :  — 
*  Report  of  the  Secretary  of  the  Treasury,  1865. 


CHAP.  X.]      THE  CO-OPERATION  OP  CAPITAL.  63 

Aggregate  national  wealth,  $14,183,000,000,  at  10  per  cent,  is 
$1,418,300,000,  which  deducted  from  the  whole  product,  as  before, 
of  $3,545,750,000,  will  leave  us  the  share  of  labor,  $2,127,450,000, 
or  about  two-thirds  of  the  whole. 

From  these  statistics,  we  find  that  the  whole  national 
wealth  is  only  equal  to  about  seven  times  the  gross  earnings 
of  labor  for  a  single  year. 

We  have  also  an  opportunity  of  comparing  the  wealth 
and  production  of  the  United  States  with  Great  Britain. 
The  estimated  wealth  of  the  latter,  according  to  Leone  Levi 
(see  his  work  on  Taxation,  page  6),  is  $30,000,000,000,  or 
$1000  per  capita ;  the  estimated  yearly  production,  $3,000,- 
000,000,  or  $100  per  capita.  The  wealth  of  the  United 
States,  according  to  the  foregoing  figuring,  and  taking  the 
whole  population,  as  in  1860,  at  31,443,321,  is  $451  each ; 
while  the  amount  of  product  per  capita  is  $112  each:  so 
that,  while  Great  Britain  has  more  than  double  the  capital, 
she  has  less  annual  product  per  capita.  This  is  a  confirma- 
tion of  the  well-known  fact,  that  capital  and  labor,  interest 
and  wages,  are  at  least  double  in  this  country  what  they  are 
in  Great  Britain.  We  must  not  confound  the  annual  pro- 
duct with  the  annual  accumulation  ;  the  latter  being  but  a 
small  fraction  of  the  former. 

Capital  should,  at  least,  increase  in  a  degree  correspond- 
ing to  the  increase  of  population.  If  it  does  not,  labor  is 
crippled,  wages  fall,  and  starvation  eventually  ensues.  Ire- 
land may  be  quoted  as  an  illustration.  Her  soil,  wrested 
from  the  people  by  conquest  at  different  periods,  from  the 
reign  of  Henry  II.  to  the  Battle  of  the  Boyne,  has  passed  into 
the  hands  of  foreigners,  who  draw  away  annually  all  her 
surplus  products.  Population  increases  from  year  to  year ; 
but  capital  does  not  increase  correspondingly.  Nay,  even 
the  waste  of  the  soil  and  of  implements  is  not  fully  and 
honestly  supplied. 

What  is  the  necessary  consequence  ?  Increasing  poverty, 
and  ultimate  starvation  or  emigration.     We  have  said  that 


64  PRODUCTION.  [BOOK  IT. 

capital  is  formed  from  the  animal  savings  of  labor.  Four 
million  pounds  a  year  go  from  Ireland  to  absentee  land- 
lords, and  eight  million  pounds  are  taken  away  every  year 
in  taxes.  The  Irish  people  can  make  no  savings.  There 
can  be  no  increase  of  their  capital.  Starvation  or  emigra- 
tion is  their  inevitable  fate. 

Is  it  possible  that  there  should  be  a  surplus  of  capital  ? 

It  is  evident  that  there  may  become  such  a  surplus,  if  we 
assume  that  production  itself  does  not  expand  in  the  mean- 
time. Given  a  certain  industry,  within  defined  limits,  it 
may  become  full  and  overflowing  with  its  accumulations. 
By  economy  and  thrift,  these  multiply  fast,  and  crowd  their 
barriers.  Common  observation  shows  this  to  be  often  true, 
with  the  enterprises  of  individuals.  The  excess  is  trans- 
ferred to  other  branches,  or  withdrawn  for  personal  gratifi- 
cations. A  seamstress,  who,  by  saving,  obtains  a  sewing 
machine,  has  a  wonderful  help  in  her  industry ;  but  a  sec- 
ond sewing  machine  would  not  assist  her  a  single  stitch. 

The  same  is  true  of  special  occupations.  The  limit  of 
profitable  production  being  reached,  the  amount  of  capital 
employed  cannot  well  be  increased.  The  product,  being 
generally  in  the  form  of  circulating  capital,  now  flows  off 
to  other  business,  or  is  turned  to  purposes  of  adornment 
and  culture. 

The  same  is  also  found  true,  though  more  rarely,  of  entire 
communities.  States  and  cities  sometimes  reach  the  limits 
within  wliich  they  desire  to  use  capital  in  their  traditional 
industries.  They  become  bankers  for  the  world,  or  direct 
their  profits  to  sumptuous  houses  and  works  of  art.  Such 
were  Genoa  and  Venice  under  the  merchant  princes,  who, 
having  reached  the  boundaries  of  known  trade,  and  brought 
all  its  machinery  to  the  perfection  of  existing  art,  began, 
wisely  enough  at  first,  that  wonderful  career  of  architecture, 
whose  ultimate  extravagance  exhausted  the  industry  that 
gave  it  rise,  and  passed  the  commerce  of  the  world  to 
traders  who  had  not  become  gentlemen. 


CHAP.   X.]  THE  CO-OPERATION   OP  CAPITAL.  65 

It  is  evident,  then,  that,  within  the  bounds  of  present 
occupations,  capital  might  easily  attain  a  surplus,  increasing 
as  it  can  more  rapidly  than  population.  It  is  productive 
only  as  applied  by  labor;  and  therefore  its  production  is 
limited  by  the  capacities  of  labor. 

But  in  fact,  and  on  the  whole  of  things,  the  limits  of 
industry  do  not  remain  the  same.  Wants  expand,  as  we 
have  seen.  Capital  is  relieved  from  its  former  employ- 
ments, and  goes  on  to  new  efforts.  It  can  hardly  multiply 
fast  enough  to  meet  the  growing  demand.  Enterprises 
spring  up  over  night.  Capital  hardly  breathes,  for  the 
work  it  has  to  do. 

We  believe  that  the  time  when  capital  shall  become  excess- 
ive in  the  world  is  far  beyond  the  occasions  of  reasonable 
calculation.  It  is  so  distant  at  the  nearest,  so  doubtful 
every  way,  as  not  to  be  a  question  in  a  practical  science,  like 
political  economy.  We  are  not  called  on  to  provide  for  the 
day  when  all  the  continents  shall  be  crowded  with  wealth 
that  can  find  no  room  to  work.  When  wealth  ceases  to  be 
wanted  for  capital,  it  is  pretty  certain  to  be  consumed  in 
luxury.  Yet  we  are  not  to  anticipate  the  same  rapid  pro- 
gress at  all  times  and  everywhere  which  we  see  in  a  new 
country  like  our  own,  full  of  wants,  and  stimulated  to 
efforts.  Capital  has  its  checks,  just  as  population  has. 
Theoretically,  steady  increase  is  certain  in  both :  practi- 
cally, each  meets  obstacles  ;  is  lost  here,  and  checked  there. 
The  forces  which  operate  to  stay  it  may  be  briefly  summed 
up  as  follows :  a  certain  disinclination  of  capital  to  emi- 
grate ;  the  lessening  power  of  personal  supervision  from  a 
distance ;  and  a  distrust  in  the  administration  of  foreign 
laws. 

Another  constant  force  operating  against  the  increase  of 
capital  is  found  in  those  wants  of  man  which  do  not  look 
to  reproduction.  The  desire  to  spend  is  just  as  truly  in 
human  nature  as  the  desire  to  earn,  and  can  be  as  accu- 
rately calculated.     Hence  it  follows,  that,  as  the  desire  to 

5 


66  PRODUCTION.  [BOOK   II. 

earn  loses  power  by  capital  becoming  plenty  and  cheap,  the 
desire  to  spend  gains  force.  A  man  is  not  nearly  as  likely 
to  use  his  money  for  personal  gratification  when  he  can  get 
eight  per  cent  for  it,  as  when  he  can  get  only  four. 

Yet,  for  all  these  obstacles,  capital,  when  it  has  supplied 
the  demands  of  labor  in  its  own  vicinity,  has  gone  abroad  to 
colonize.  It  has  carried  on  great  wars  in  which  it  had  no 
interest,  has  developed  the  resources  of  infant  states,  and 
saved  old  nations  tottering  to  their  fall.  Capital  has  gone 
round  the  world  in  the  same  boat  with  the  inspired  dis- 
coverer. It  watched  with  Columbus  the  weeds  drifting 
from  an  unknown  land ;  it  "  stared  at  the  Pacific  "  by  the 
side  of  stout  Cortes  ;  it  debarked  with  the  gallant  Cook,  nor 
was  it  frightened  at  the  savage  violence  which  took  his  life. 
Like  Caesar,  it  would  not  wait  for  the  boat  to  come  to  land. 
It  freighted  vessels  for  countries  not  named ;  it  sent  fleets 
to  ports  never  visited  by  civilized  man. 


CHAPTER  XI. 

THE   CO-OPERATION   OP   CAPITAL   (concluded). 

2d,  The  union  of  capital  and  labor  will  be  most  effect- 
ive, when  each  is  sure  of  its  just  reward.  If  the  rights  of 
man  as  a  holder  of  property  are  sacred,  and  his  rights  as 
laborer  equally  so,  the  greatest  motive  to  production  can 
be  secured.  If  otherwise,  the  creation  of  wealth  will  be 
restricted.  Men  will  not  work  or  save,  unless  sure  of  their 
reward. 

There  cannot  come,  out  of  the  earth  or  heaven,  a  blow  that 
levels  all  industry  in  the  dust  so  quickly  and  hopelessly  as 
wrong  done  between  labor  and  capital.*    Pestilence,  drouth, 

*  It  will  be  recollected  that  production  carried  on  by  slaves  is  done  wholly 
by  capital :  the  producer  being  a  chattel,  the  whole  product  is  that  of  capital 


CHAP.    XI.]  THE   CO-OPERATION   OF   CAPITAL.  67 

or  floods  do  not  so  thoroughly  and  permanently  prostrate 
the  strength  and  hopes  of  a  country  as  a  breath  of  suspicion 
on  the  union  of  the  two  great  agents  of  production.  Then 
comes  an  antagonism,  indeed,  fatal  to  both.  There  is 
hardly  any  climate  or  soil  so  unpropitious  that  man  will 
not  struggle  on,  earning  his  livelihood  with  much  endu- 
rance, and  laying  something  by  for  the  future.  There  is 
hardly  any  government  so  rigorous  as  wholly  to  suppress 
the  energy  of  its  people.  There  is  hardly  any  taxation  so 
exhaustive  that  something  still  cannot  be  got  out  of  Nature 
for  man.  In  all  these  difficulties,  the  motive  to  exertion 
is  not  destroyed.  But  if  foul  play  or  legal  fraud  comes 
between  labor  or  capital  and  their  reward,  the  very  life  of 
industry  ceases  at  the  thought.  The  spring  of  work  is 
broken.  Its  admirable  parts  and  its  cunning  mechanism 
are  useless,  motionless.  The  exactions  and  oppressions  of 
the  old  regime  had  not  so  broken  the  spirit  of  France,  but 
that  her  population  and  her  wealth  went  on  increasing, 
slowly,  painfully,  but  constantly,  certainly.  The.  Revolu- 
tion came ;  the  Convention  questioned  the  rights  of  prop- 
erty, confiscated  the  estates  of  nobles,  and  sequestered  the 
entire  endowment  of  the  Church.  Half  this  would  have 
been  enough  for  ruin.  The  industry  of  France  dropped 
where  it  stood.  In  a  few  months,  the  Convention  was  devis- 
ing schemes  by  which  work  should  be  provided  by  the  State 
for  all  its  citizens.  Capital  had  fled  to  the  dark  places  of 
the  kingdom.  Labor  was  helpless,  crippled,  starving.  What 
had  wrought  all  this  ?  The  violation  of  rights.  Property 
was  discredited  ;  capital  outlawed  ;  labor  prostrate. 

Labor  is  the  first  to  suffer.  Its  wants  are  instant,  imme- 
diate, vital.  Capital,  in  such  economical  convulsions,  has 
the  privilege  of  leviathan.  It  can  dive  down  to  the  depths, 
and  give  up  breathing  for  a  while.  If  labor  goes  under,  it 
dies. 

It  is  familiar  to  every  reader  of  history  how  the  brutal 
rapacity  of  the  Spanish  conquerors  terrified  the  nations  of 


68  PRODUCTION.  [BOOK  H. 

Peru  and  the  Antilles,  and  shut  up  the  treasures  of  the  New 
World  in  a  secrecy  that  even  torture  could  not  break.  The 
wisdom  of  the  man  that  owned  the  hen  that  laid  the  golden 
egg  has  been  embodied  a  thousand  times  in  the  acts  of  gov- 
ernment. The  result  is  never  the  enriching  of  one  ;  it  is 
ever  the  ruin  of  all.  "Wealth  itself  becomes  valueless,  since 
it  has  no  security  in  possession,  and  only  excites  the  cupid- 
ity of  the  common  tyrant. 

If  such  is  admitted  to  be  the  effect  of  occasional  invasions 
of  property  rights,  either  in  labor  or  capital,  we  shall  be 
prepared  to  explain  the  barrenness  of  many  countries  the 
oldest  and  best  endowed  of  the  world. 

The  dreariness  of  Asia  rises  in  eloquent  vindication  of 
the  harmonies  of  natural  law.  A  perfidious  and  cruel  des- 
potism has  there  made  property  undesirable.  Man  finds 
safety  only  in  poverty  and  degradation.  The  Jewish  is  per- 
haps the  only  people  that  has  pursued  wealth  steadily  and 
unremittingly,  in  spite  of  injustice  and  robbery. 

3d,  The  union  of  labor  and  capital  is  most  effective  when 
the  latter  is  appropriately  distributed.  Capital  creates  no 
values  by  its  own  powers.  It  must  be  joined  with  labor. 
Somebody  must  use  it,  bring  his  personal  energies  to  bear 
upon  it,  set  it  in  motion,  watch  its  operations,  work  with  it. 
The  farmer,  the  merchant,  the  manufacturer,  must  each 
bestow  constant  attention  on  the  capital  he  employs,  or 
no  good  will  come  of  it.  The  more  intense  and  vigilant 
the  application,  the  more  certain  the  return,  the  larger  the 
profits.  This  is  a  well-known  practical  principle ;  and  from 
it  follows  that  the  point  will  be  reached  where  an  individual 
has  so  much  capital  under  his  control  that  his  entire  efforts, 
by  himself  and  those  working  under  his  direction,  are  not 
sufficient  to  secure  its  greatest  effectiveness.  Of  course,  in 
such  a  case,  it  is  economically  right  that  the  excess  of  capi- 
tal should  be  transferred  to  some  other  position,  where  its 
full  productiveness  can  be  obtained. 

Such  limitations  are  highly  beneficial  to  society ;  for,  were 


CHAP.    XI.]  THE   CO-OPERATION   OF   CAPITAL.  69 

there  no  restrictions  of  this  kind,  were  capital  in  vast  aggre- 
gations equally  efficient  as  in  smaller  bodies,  the  business 
of  the  world  might  be  controlled,  and  the  profits  appropri- 
ated, by  a  very  few  persons. 

The  point  is  of  great  importance.  Such  a  concentration 
of  capital  as  effects  the  highest  division  of  labor,  and  the 
fittest  application  of  machinery,  is  desirable  for  the  interest 
of  all ;  and  for  those  purposes,  and  up  to  such  a  degree,  cap- 
ital so  concentrated  has  a  wonderful  power  in  production. 
But  its  aggregation,  merely,  is  a  hinderance  rather  than  a 
help.  After  the  two  advantages  spoken  of  above  are  once 
secured,  capital  becomes  potent  and  beneficial  just  in  pro- 
portion as  it  is  distributed.  By  such  distribution,  it  comes 
closer  to  labor  and  natural  advantages.  It  makes  use  of 
various  powers ;  it  defends  itself  better  in  emergencies  ;  it 
adapts  itself  more  shrewdly  to  peculiarities  of  circumstance  ; 
it  has  a  keener  intelligence  of  the  public  wants  ;  it  com- 
mands a  greater  amount  of  executive  talent ;  it  superin- 
tends its  employes  with  more  accuracy  ;  it  saves  the  pieces, 
keeps  machinery  oiled,  looks  after  tools. 

The  man  who  is  to  gain  by  the  work  is  brought  nearer  to 
it.     He  is  well  served,  because  he  serves  himself. 

For  a  long  time,  it  was  a  favorite  belief  with  the  Ameri- 
can people,  that  corporations  were  the  most  efficient  agents 
of  production,  even  where  the  work  was  not  so  great  as  to 
be  beyond  individual  enterprise.  The  older  wisdom  of  the 
country  turns  more  and  more  to  the  smaller  establishments, 
which  secure  full,  interested  personal  supervision  of  labor. 
The  English  economy  has  always  preferred  these,  except 
where  the  operations  were  beyond  the  reach  of  ordinary 
capital. 

4th,  The  union  of  capital  and  labor  is  most  effective 
where  there  is  the  greatest  freedom  of  industry. 

Whenever  a  population  is  sufficiently  intelligent  to  under- 
stand its  own  interests,  it  should  be  left  to  direct  its  own 
labors.    Its  industry  should  never  be  interfered  with  by 


70  PRODUCTION.  [BOOK  II. 

government.  In  all  countries  which  may  be  considered 
as  enlightened  or  civilized,  like  the  European  and  Anglo- 
American,  the  people  have  no  occasion  to  look  to  govern- 
ment for  direction  as  to  the  business  they  shall  engage  in, 
or  the  manner  in  which  they  shall  conduct  it.  Every 
branch  of  industry,  in  a  normal  state  of  society,  grows  spon- 
taneously out  of  the  wants  and  capacities  of  the  people. 
Tillage,  manufacturers,  commerce,  fisheries,  spring  up  in 
the  places  to  which  they  are  best  adapted.  They  can  never 
be  advantageously  forced  into  being,  or  maintained  by  gov- 
ernmental authority  and  patronage.  Every  plant  will  thrive 
best  in  its  own  soil.  Soils  and  climates  vary :  productions 
will  differ  in  consequence. 

But  our  immediate  topic  relates,  not  to  acts  of  govern- 
ment, based  on  a  distinct  purpose  to  change  the  general 
course  of  national  industry,  —  which  will  be  more  appro- 
priately discussed  elsewhere,  —  but  rather  to  those  which 
impose  minor  restrictions ;  directing  the  modes  of  labor, 
moulding  the  forms  of  capital,  and  prescribing  the  condi- 
tions of  their  union.  All  limitations  of  the  rights  and 
powers  of  capital  or  labor,  not  required  by  the  public  mo- 
rality or  security,  are  useless  and  mischievous. 

No  lawmaker  can  gather  and  express  the  desires  of  his 
people  so  accurately  and  seasonably  as  they  are  shown  in  the 
market  demand ;  or  set  in  train  and  carry  on  their  efforts, 
with  myriad  instrumentalities,  to  that  end,  so  savingly  and 
earnestly  as  is  done  by  interested,  educated  capitalists ;  or 
present  satisfactions  so  fully  and  happily  as  is  done  by  the 
merchant  whose  fortune  is  to  answer  for  his  appreciation  of 
the  public  wants. 

The  work  of  the  politician  in  this  behalf  is  gratuitous 
and  impertinent.  It  is  an  indignity  to  industry  which  will 
be  revenged  upon  the  people.  Capital  and  labor  should  be 
mobilized  as  far  as  possible ;  free  to  collect  or  divide,  to 
turn  to  the  right  or  to  the  left ;  free  in  gift,  purchase,  and 
heritage.     On  the  contrary,  the  effort  of  legislation  has  gen- 


CHAP.   XII.]  ECONOMIC   CULTURE.  71 

erally  been  to  impose  checks  and  limitations  and  hinder- 
ances  everywhere. 

We  have  thus  discussed  at  length  the  union  of  capital 
and  labor  ;  passing  close  by  the  great  practical  questions  of 
protection  and  entail,  but  reserving  them,  the  one  to  the 
division  of  "  Exchange,"  the  other  to  that  of  "  Distribu- 
tion." 


CHAPTER  XII. 

ECONOMIC     CULTURE. 

We  shall  best  define  the  field  of  this  agency  by  discussing 
one  of  the  most  severely  contested  questions  of  political 
economy,  viz. :  — 

What  is  the  distinction  between  productive  and  unpro- 
ductive labor? 

The  form  of  this  question  is  unfortunate,  and  has  caused 
the  greater  part  of  the  confusion  prevailing  on  the  subject. 
In  itself,  it  is  of  slight  importance ;  but,  in  the  course  of  the 
discussion,  a  very  grave  matter  has  become  involved  with  it, 
helping  the  understanding  of  neither. 

Dr.  Adam  Smith  insisted  strongly  on  the  distinction 
between  productive  and  unproductive  laborers.  In  the 
former  class  he  embraced  all  those  who  produce  material 
objects,  which  are  generally  admitted  to  be  of  use  and  bene- 
fit to  mankind.  Such,  clearly,  are  farmers,  mechanics,  and 
merchants,  in  the  general  application  of  their  industry.  Of 
unproductive  laborers,  he  says,  "  In  this  class  must  be 
ranked  some  of  the  greatest  and  most  important,  and  some 
of  the  most  frivolous  professions, — churchmen,  lawyers,  phy- 
sicians, men  of  letters  of  all  kinds,  players,  buffoons,  musi- 
cians, opera-singers,  opera-dancers,  &c."  This  somewhat 
extended  list  by  Dr.  Smith  has  suffered  curtailment  by 
almost  all  writers  since.     The  distinction  between  physical 


72  PRODUCTION.  [BOOK   II. 

and  mental  labor,  between  direct  and  indirect  agency  in 
production,  could  not  long  be  permitted  to  remain  as  found- 
ing a  distinction  between  productive  and  unproductive  labor. 
It  is  clear  that  the  physician  who  preserves  the  life  and 
strength  of  the  workman  on  the  farm  or  in  the  shop  is 
equally  productive  with  him  ;  and  that  the  lawyer  by  whom 
transfers  of  property  are  effected,  and  personal  safety 
secured,  is  equally  productive  with  the  owner  or  the  over- 
seer. 

One  occupation  after  another,  "  important  or  frivolous," 
was  withdrawn  from  the  unproductive  class,  as  prejudices 
disappeared  in  the  light  of  a  better  philosophy,  and  as  the 
part  of  each  in  the  great  economy  became  manifest ;  so 
that  now  little  is  left  of  that  sweeping  condemnation  of  un- 
productiveness passed  by  the  father  of  the  science  upon  the 
learned  and  artistic  professions.  Yet  there  is  a  residuum, 
which  it  is  our  business  to  clear  away. 

All  labor,  in  the  economic  sense,  is  productive.  The  only 
office  of  labor  is  production.  We  do  not,  in  either  popular 
or  scientific  language,  call  by  that  name  the  efforts  a*  man 
makes  to  do  mischief,  to  dig  away  a  dam  or  girdle  trees, 
though  he  may  devote  his  utmost  energies  to  such  destruc- 
tion. Nor  do  we  call  that  labor  which  does  not  seek  a 
reward,  whether  it  be  play,  though  of  the  hardest  kind,  or 
gratuitous  service,  however  useful  to  the  recipient.  No 
more  should  we  call  by  the  name  of  labor  that  misdirected 
or  mistaken  effort  which  fails  of  its  reward. 

Labor  is  defined  as  the  efforts  of  man  directed  to  the  sat- 
isfaction of  his  desires.  Every  effort  that  is  not  so  directed 
is  a  shot  thrown  away.  It  is  wasted  power,  not  labor.  If  I 
spend  a  twelvemonth  in  the  invention  of  a  machine,  which, 
when  completed,  is  of  no  sort  of  use  to  any  one,  and  for 
which  I  can  get  nothing,  my  exertions  have  been  unproduc- 
tive. I  have  worked  enough  for  a  reward  ;  but,  as  it  proved, 
my  work  was  not  directed  to  the  satisfaction  of  human 
desires.     So  of  expenditures  to  improve  land,  which  in  no 


CHAP.   XII.]  ECONOMIC    CULTURE.  73 

way  enhance  its  fertility.  There  is  a  great  deal  of  this  kind 
of  effort :  perhaps  much  is  inevitable.    It  is  waste,  not  labor. 

But  it  may  be  urged,  Suppose  a  man  works  for  months 
preparing  ground,  planting,  and  cultivating  till  his  crop  is 
nearly  ready ;  but  a  flood  comes,  and  carries  all  off  from 
before  his  eyes,  and  leaves  him  nothing  to  show  for  what  he 
has  done.  Was  there  not  labor  bestowed  ?  Certainly  ;  and 
the  labor  was  productive,  and  it  had  its  reward,  not  the  less 
that  each  individual  effort  did  not  carry  off  its  result  in  a 
complete  form  at  the  time,  but  waited  for  the  harvest. 
Value  was  produced  at  every  stroke  of  the  shovel  —  palp- 
able, appreciable,  marketable  value — just  as  truly  as  if  it  had 
been  taken  home  at  the  close  of  each  day.  Labor  had  been 
there,  and  received  its  recompense ;  but  the  flood  made  a 
robbery  of  it  all.  Not  the  less  was  there  labor,  not  the  less 
was  there  production,  not  the  less  was  there  value. 

In  this  view,  we  see  that  all  labor  is  productive. 

But  it  may  be  asked,  Does  it  make  no  difference  to  the 
community  what  objects  of  labor  are  selected,  and  by  what 
means  these  objects  are  attained  ?  Certainly  ;  and,  in  this 
inquiry,  we  reach  the  field  of  economic  culture,  which  is 
that  education  of  the  desires,  that  instruction  of  efforts, 
and  that  use  of  satisfactions,  which  will  unite  to  bring  out 
desires,  efforts,  and  satisfactions  in  ever-increasing  circles 
of  industry.  Here  arise,  properly,  all  the  important  ques- 
tions which  were  formerly  discussed  under  the  head  of  pro- 
ductive or  unproductive  labor. 

Now  it  can  be  asked  with  effect,  whether  the  opera-dancer, 
the  physician,  and  the  churchman  are  useful ;  whether  they 
expand  the  desires,  instruct  the  efforts,  and  dispose  the  sat- 
isfactions of  men  to  a  constantly  enlarging  industry. 

Let  us  inquire  closely.  It  will  be  readily  granted,  that 
these  and  other  similar  classes  may  have  influence  upon, 
or  power  in,  production  in  two  forms,  either  primary  or 
secondary. 


74  PRODUCTION.  [BOOK  II. 

Primary,  where  a  direct  part  is  taken,  an  active  agency 
maintained,  in  the  creation  of  values. 

Secondary,  when  an  effect  is  produced,  which,  hy  modify- 
ing human  capacities  or  desires,  however  indirectly  and  in 
whatever  degree,  brings  about  ultimately  a  greater  creation 
of  values. 

For  example:  that  great  class  which,  in  various  offices, 
maintains  civil  justice  and  order,  has  indisputably  a  primary 
influence  or  power  by  rendering  possible  the  present  crea- 
tion of  values,  and  by  watching  over  their  keeping  and 
transfer.  Government  and  the  law  are  great  agencies  of 
production.  Without  them,  however  desirous  people  might 
be  of  wealth,  and  however  capable  of  effort,  little  or  noth- 
ing could  be  produced.  Robbery  and  violence  would  scatter 
and  destroy  what  already  exists,  and  a  universal  waste 
would  speedily  follow.  But  they  have,  also,  a  secondary 
power  or  influence  ;  for  it  is  found  that  the  maintenance  of 
peace  and  property  rights  awakens  new  and  increasing 
desires,  widens  the  horizon  of  ambition,  and  stimulates 
everywhere  to  honest  industry.  Civil  security  is  an  educa- 
tion fbr  wealth,  an  economic  culture. 

Then  that  great  class  which  teaches  has  both  a  primary 
and  a  secondary  power  and  influence,  —  primary,  in  that  it 
gives  instruction  to  present  labor,  as  it  is  struggling  to-day 
with  the  difficulties  of  production ;  explains  chemical  and 
mechanical  laws ;  and  establishes  the  alphabet,  the  written 
letter,  electric  communication,  the  rules  of  book-keeping, 
and  the  art  of  navigation :  secondary,  in  that  the  progress 
of  mind  brings  it  infallibly  to  higher  stations  of  aspiration 
and  activity. 

The  work  of  the  physician  is  almost  entirely  of  the  pri- 
mary character.  He  saves  the  lives  of  producers,  and 
preserves  their  strength  to  labor.  This  secondary  power  or 
influence  of  his  profession,  if  such  exists,  is  distant  and 
trivial. 

On  the  other  hand,  we  shall  add  nothing  to  the  dignity  of 


CHAP.   XII.]  ECONOMIC  CULTURE.  75 

the  churchman  or  priest  or  minister,  by  attributing  to  him 
any  direct  power  in  production.  Yet  his  part  may  be  no 
less  important  because  secondary.  The  influence  of  religion 
is  hardly  less  marked  than  that  of  race,  in  the  creation  of 
values.  If  its  influence  tend  to  improve  the  morals,  and 
thus  aid  in  the  preservation  of  public  order ;  to  elevate  the 
mind,  and  thus  give  it  nobler  and  higher  aspirations,  and  a 
better  appreciation  of  the  right  uses  of  wealth,  —  it  must  be 
a  great  auxiliary  to  its  production. 

That  class  of  agencies  which  we  have  designated  as  pri- 
mary comes  within  the  view  of  production.  The  class  of 
secondary  agencies  belongs  to  the  department  of  consump- 
tion, which  treats  of  the  use  of  wealth,  so  that  it  may  bring 
forth  more  wealth. 

Here,  in  economic  culture,  is  the  point  at  which  pro- 
duction, passing  by  exchange  and  distribution,  comes  into 
relation  with  consumption.  In  pure  theory,  production 
and  consumption  complete  the  economic  good,  which  is 
reproduction.  The  harvest  which  is  gained  in  production 
is  sown  or  wasted,  as  the  case  may  be,  in  consumption,  to 
re-appear  in  a  more  abounding  harvest,  or  in  barrenness, 
in  reproduction.  Practically,  however,  we  have  to  intro- 
duce the  laws  of  exchange  and  distribution,  as  the  agencies 
by  winch  production  is  finished,  and  consumption  made 
possible. 

We  have  used  metaphors  drawn  from  the  chemistry  of 
agriculture  to  express  the  significance  of  economic  culture. 
To  illustrate  from  mechanics,  we  should  say  that  it  treats 
of  the  re-action  of  labor.  No  force  can  re-act  except  from 
something  external.  Labor  is  a  force  directed  to  an  object. 
The  energy  with  which  it  is  to  move  in  a  new  direction 
will  depend  on  the  temper  and  shape  of  the  body  on  which 
it  impinges.  Reproduction,  then,  is  the  rebound  of  pro- 
duction from  consumption. 

If  labor  expends  itself  on  objects  that  do  not  stimulate  to 
further  efforts  or  serve  as  instruments  to  further  produc- 


76  PRODUCTION.  [BOOK   II. 

tion,  but  rather  debauch  the  energies  and  corrupt  the 
faculties,  it  is  evident  that  reproduction  will  be  lessened 
and  debased,  and  the  whole  course  of  industry  be  down- 
ward. 

If,  on  the  contrary,  labor  expends  itself  on  objects  that 
present  fresh  and  urgent  desires,  and  excite  to  renewed 
activities,  it  is  evident  that  the  course  of  production  is  up- 
ward ;  and  the  people  will  rise  economically,  with  a  rapidity 
and  force,  such  as  signalized  the  career,  in  the  fourteenth 
century,  of  Florence  ;  in  the  seventeenth,  of  Holland ;  in 
the  eighteenth,  of  England ;  in  the  nineteenth,  of  tke  United 
States. 


BOOK  III. 
EXCHANGE. 


PART    FIRST.— TRADE. 
CHAPTER  I. 

THE  PRINCIPLES  OP  TRADE. 

Exchange  has  its  origin  from  the  division  of  labor;  and 
the  further  that  division  is  carried,  the  greater  extension  is 
given  to  exchange.  If  each  man  supplied  his  own  wants 
by  his  own  work,  trade  could  not  exist.  But,  so  far  from 
this  being  the  rule  of  industrial  society,  the  article  to  which 
a  man  devotes  all  his  labor  may  be  such  as  he  never  used, 
perhaps  never  saw  used. 

Exchange  is  that  agency  which  brings  a  man  what  he 
wants  for  what  he  does  not  want,  which  furnishes  gratifica- 
tion for  his  desires  out  of  objects  which  are  adapted  to 
gratify  few  or  none  of  his  desires. 

As  the  division  of  labor  begins  in  the  most  savage  state, 
so  exchange  is  known  there.  One  goes  into  the  woods  for 
venison ;  another,  to  the  river  for  fish.  At  night,  they 
divide.  Half  the  fish  is  given  for  half  the  meat.  Perhaps 
other  parties  are  introduced.  Instead  of  exchanging  the 
whole  of  their  fish  or  venison,  each  of  the  two  gives  a  por- 
tion for  a  trinket,  and  another  portion  to  the  medicine  man 
for  herbs  which  he  alone  knows  how  to  collect.  We  have 
here  brought  in  exchange,  not  only  in  regard  to  the  plain 
necessaries  of  life,  but  to  the  services  of  science  and  to  lux- 
uries.   Yet  all  this  occurs  in  the  daily  life  of  the  savage 

[771 


78  EXCHANGE.  [BOOK  III. 

Only  one  went  for  venison :  four  have  venison  now.  Only 
one  went  fishing-:  four  have  fish  to  eat.  The  hunter  and  the 
fisherman  have  trinkets  and  medicine  they  know  not  how  to 
get.  The  doctor  and  the  cripple  who  made  the  trinket  have 
fish  and  venison  they  could  not  procure  for  themselves. 

This  is  the  idea  of  exchange.  It  extends  first  to  the 
industry  of  a  hamlet ;  it  enlarges  to  take  in  the  entire  com- 
munity ;  it  remains  through  all  the  successive  modifications 
and  refinements  of  labor  and  accumulations  of  capital.  It 
goes  abroad ;  it  crosses  rivers,  then  narrow  seas,  then  the 
broad  ocean ;  hunting  out  everywhere  what  the  seller  wants, 
carrying  everywhere  what  the  buyer  wants.  The  word 
"exchange"  expresses  the  economical  principle  of  all  this: 
its  office  is  the  creation  and  apportionment  of  wealth. 

"  Trade "  is  a  technical  term  for  the  sum  of  all  actual 
exchanges.     It  is  exchange  realized. 

There  are  several  kinds  of  trade :  — 

1st,  Domestic  or  home  trade,  which  includes  what  is 
commonly  known  as  the  coasting  trade. 

2d,  Carrying  trade,  in  which  the  carriers  have  no  inter- 
est in  the  commodities  beyond  their  transportation. 

3d,  Foreign  or  international  trade,  to  which  the  word 
"  commerce  "  is  generally  applied. 

These  kinds  of  trade  are  subdivided  into  the  wholesale, 
retail,  and  jobbing  trades ;  and  specialized  indefinitely  as 
the  iron,  cotton,  shoe  trades,  &c. 

Whence  does  trade  arise  ? 

From  the  desire  which  individuals  and  communities  have 
for  each  other's  products.  It  is  evident  that  this  is  essen- 
tial to  trade ;  since,  if  men  or  peoples  produced  by  them- 
selves all  they  wished  for,  there  could,  as  we  have  said,  be 
no  occasion  for  an  exchange.  It  is  evident,  also,  that  this 
is  sufficient  for  trade,  since  it  supplies  all  the  motive  that 
can  exist  for  an  exchange. 

To  what  extent  can  trade  be  carried  ? 

To  the  extent  of  the  surplus  production  of  each  individ- 


CHAP.    I  ]  THE  PRINCIPLES   OF   TRADE.  79 

ual  or  nation.  Given  the  aggregate  surplus  products  of  all 
the  people  of  a  country  severally,  and  we  have  the  amount 
of  its  entire  trade.  Given  the  aggregate  surplus  products  of 
the  people  collectively,  and  we  have  the  amount  of  its  foreign 
trade. 

Illustration  :  Suppose  a  community  of  one  hundred  indi- 
viduals, each  producing  three  hundred  dollars'  worth  a  year, 
—  aggregate  revenue,  thirty  thousand  dollars.  If  each  per- 
son desires  to  consume  only  one  hundred  dollars'  worth  of 
his  own  articles,  he  will  have  left  for  trade  two  hundred 
dollars'  worth,  —  aggregate  in  the  community,  twenty  thou- 
sand dollars.  But  if,  after  exchanging  around  with  his 
neighbors,  it  is  found  that  each  member  of  the  community 
has  one  hundred  dollars  which  he  does  not  wish  to  part  with 
for  any  thing  he  can  get  at  home,  we  have  the  aggregate 
surplus  available  for  foreign  trade,  ten  thousand  dollars. 

Ordinarily,  individuals  or  peoples  do  not  wish  to  part 
with  all  their  products.  Ohio,  for  example,  does  not  wish 
to  dispose  of  all  her  wheat.  A  share  must  be  kept  for 
home  consumption.  The  surplus  will  be  exchanged  for  other 
commodities  abroad. 

Exactly  the  amount  to  be  so  retained  will  depend,  within 
certain  limits,  on  the  degree  of  disposability.  The  more  the 
wheat  is  in  demand,  —  that  is,  the  more  of  desirable  things 
are  offered  for  it, — the  less  will  the  producers  be  inclined  to 
retain  it ;  the  greater  effort  will  they  make  to  dispense  with 
its  use  themselves,  or  substitute  other  things  for  it  at  home. 
But  this  result  will  be  limited  by  the  necessities  of  the  peo- 
ple. It  cannot  be  calculated  on  to  increase  very  largely  the 
amount  available  for  trade. 

It  will,  of  course,  be  remarked,  that  the  amount  of  sur- 
plus, in  particular  countries,  will  vary  with  the  character  of 
their  products.  We  can  suppose  an  entire  people  engaged 
in  industry,  of  which  they  make  no  use  themselves.  In 
such  a  case,  their  trade  would  be  to  the  amount  of  their 
whole  production  and  their  whole  consumption.     In  fact, 


80  EXCHANGE.  [BOOK   III. 

this  condition  of  things  is  never  realized.  The  nearer  it  is 
approached,  the  more  general  the  trade.  The  more  vital 
and  primitive  the  articles  produced,  the  greater  will  be  the 
share  consumed  at  home.  Ohio  has  no  such  trade,  propor- 
tionately, as  Rhode  Island;  not  necessarily  because  the 
latter  produces  more,  but  that  she  produces  more  of  what 
she  does  not  want.  The  people  of  Birmingham  consume 
but  an  infinitesimal  part  of  the  articles  they  produce. 

We  have  here  the  principle  that  the  wealth  of  a  people  is 
not  determined  by.  the  extent  of  its  trade. 

We  have  said  that  the  trade  of  a  community,  whose  whole 
production  was  exchanged,  would  be  equal  to  its  production 
and  consumption.  It  would  be  so,  but  that  would  be  deter- 
mined by  its  production  only.  It  would  be  this  alone  which 
it  would  carry  in  its  hands  into  the  markets  of  the  world, 
and  on  this  would  depend  what  it  should  get  there. 

What  persons  or  communities  will  trade  most  largely 
with  each  other  ? 

Other  things  equal,  those  whose  productions  differ  most. 

Two  tailors  will  not  traffic  much  together.  Both  will 
trade  with  the  shoemaker  and  hatter.  Indiana  will  not  trade 
extensively  with  Illinois ;  but  both  will  trade  largely  with 
Louisiana  and  Massachusetts.  Russia  and  Sweden  will 
make  very  few  exchanges,  because  their  productions  are  as 
much  alike.     Both  will  deal  largely  with  the  West  Indies. 

What  determines  the  character  and  kind  of  products  each 
country  will  afford  ? 

1st,  Soil  and  physical  conformation.  One  will  be  a  wheat- 
raising,  another  a  wool-growing  country.  Each  will  spon- 
taneously turn  its  industry  in  that  direction  where  it  will 
produce  the  greatest  values  with  the  least  outlay  of  labor 
and  capital.  This  must  be  where  the  natural  adaptations 
of  the  land  are  followed.  This  operates,  in  respect  to  na- 
tions, precisely  as  we  see  it  in  smaller  communities,  where 
one  farm  is  especially  fitted  for  grazing,  another  for  tillage, 
another  for  timber. 


CHAP.   I.]  THE   PEINCIPLES   OF  TRADE.  .  81 

2d,  Climate.  From  the  Arctic  regions  to  the  tropics, 
from  Siberia  to  Hindostan,  is  infinite  variety,  both  of  heat 
and  moisture.  Some  countries  are  deluged  with  twenty-five 
feet  of  water  in  a  season ;  *  others  parch  the  year  round 
with  ten  inches.  Some  are  locked  with  frost  eight  months 
in  twelve ;  others  are  open  the  year  round.  It  is  evident 
that  the  conditions  which  are  admitted  to  have  given  rise  to 
the  differing  species  of  fruits  and  grains  and  vegetables  will 
control  their  increase. 

3d,  Social  condition.  Take,  for  examples,  England  and 
Brazil,  —  one  distinguished  for  the  high  moral  and  mental 
endowments  of  its  citizens ;  the  other  having  a  heteroge- 
neous population,  in  a  poor  and  semi-barbarous  condition. 
The  latter  would,  plainly,  seek  to  enrich  themselves  from 
the  spontaneous  yield  of  the  soil,  from  the  wild  wealth  of  the 
pampas  and  the  forests,  from  the  precious  ores  and  stones 
along  their  streams  and  in  natural  caves,  rather  than  till 
the  ground  to  the  fertility  of  a  garden,  sink  shafts  into  the 
solid  rock,  cast  up  highways  upon  the  rivers,  and  work  iron 
into  the  needle  and  lancet. 

4th,  Difference  of  race. 

This  is  additional  to  differences  of  social  condition,  and 
looks  to  those  peculiarities  of  industrial  character  in  the 
races  of  man,  which  are  no  less  distinguishable  than  their 
peculiarities  of  stature,  complexion,  and  feature.  These  do 
not  affect  the  degree  of  production  only,  as  greater  or  less, 
but  multiply  the  fashions,  and  complete  the  varieties  of 
wealth. 

All  the  causes  here  enumerated  conspire  to  give  a  great 
extent  and  activity  to  trade.  It  is  in  the  commerce  of  the 
world  that  we  have  illustrated  — 

THE   TERRITORIAL   DIVISION   OP  LABOR. 

The  Chinese  raise  tea  and  silk.     This  is  their  specialty, 

*  The  mountains  south  of  Bombay  receive  three  hundred  and  twenty 
inches  of  water  a  year,  mostly  in  three  months. 

6 


82  •  EXCHANGE.  [BOOK   III. 

the  form  of  industry  to  them  most  profitable.  The  Cubans 
produce  sugar;  and  the  Sicilians,  oranges,  for  the  same  rea- 
son. England  excels  all  nations  in  useful  manufactures ; 
France,  in  those  of  taste  and  beauty ;  while  the  United 
States  has  its  great  industrial  power  in  cotton  and  wheat. 

Under  the  operation  of  natural  laws,  each  country  employs 
and  disposes  of  its  labor,  without  any  arbitrary  enactments,  in 
just  the  way  most  congenial  and  profitable ;  in  other  words, 
in  that  way  which  develops  its  greatest  industrial  power, 
and  secures  the  largest  possible  production. 

Suppose,  on  the  contrary,  that  we  of  the  United  States 
should  determine  to  raise  our  own  oranges.  We  could  do 
so,  and  create  a  supply  equal  to  the  demand.  The  cost  of 
one  orange  would  probably  be  equal  to  the  cost  of  raising  a 
bushel  of  wheat,  which  would  procure  for  us  abroad  one 
hundred  oranges.  The  loss  would  be  equal  to  ninety-nine 
out  of  every  hundred  oranges.  We  should  force  a  cer- 
tain part  of  the  labor  engaged  in  other  pursuits  into  the 
business  of  raising  oranges.  The  supply  would  be  fully 
equal  to  the  demand ;  for,  at  the  rate  of  a  bushel  of  wheat 
for  each  orange,  few  oranges  would  be  wanted.  The  people 
would  lose  the  enjoyment  of  ninety-nine  out  of  every  hun- 
dred oranges  they  would  otherwise  consume,  and  could  just 
as  well  have,  if  allowed  to  pay  for  them  in  wheat. 

If  we  turn  to  the  advantages  alleged  *  of  the  division  of 
labor  individually,  we  shall  find  that  each  one  of  them  holds 
good  in  the  application  of  the  principle  territorially.  Indeed, 
it  may  be  assumed  that  it  is  here  more  active  and  efficient, 
since  the  differences  of  communities  range  higher  than 
those  of  individuals.  On  the  other  hand,  the  limitations 
prescribed  are  indefinitely  removed  when  we  come  to  the 
field  of  national  industry ;  and  the  disadvantages  disappear 
altogether.  That  would  be  a  bold  philosophy  that  should 
declare  a  people  one-sided  which  does  not  produce  every 
thing  it  consumes.     So  far  from  being  considered  a  defect, 

*  See  Production,  ch.  iv.  et  seq. 


CHAP.    I.]  THE   PEINCIPLES   OF  TEADE.  83 

that  races  or  nationalities  should  develop  very  strongly  in 
special  directions,  it  is  highly  desirable.  While  it  takes 
nothing  from  the  individual  excellence,  each  contributes 
with  a  greater  generosity  to  the  completeness  of  the  whole. 

From  these  general  considerations  of  trade,  we  deduce 
the  following  principles  :  — 

1st,  That  individuals  must  produce  a  surplus  of  their  own 
commodities  to  have  an  opportunity  to  trade,  and  must 
trade  to  make  it  an  object  to  produce  a  surplus.  Wants 
create  wealth,  and  wealth  creates  wants. 

2d,  That  every  nation  is  interested  in  the  production  of 
every  other  nation.  Any  thing  which  impedes  the  produc- 
tion of  any  individual  or  community  injures  the  trade  of 
the  world.  Such  causes,  for  example,  are  pestilence,  as  the 
cholera,  yellow-fever,  and  plague  ;  the  convulsions  of  na- 
ture, as  earthquakes  and  inundations  ;  war,  as  in  the  case 
of  the  late  war  in  India,  which  sensibly  affected  the  trade  of 
the  world,  and,  still  more  striking  and  recent,  in  the  case 
of  the  great  Rebellion  in  the  United  States,  which  was  felt, 
it  may  almost  be  said,  by  every  human  being  on  the  globe. 
Not  a  consumer  of  cotton,  high  or  low,  civilized  or  savage, 
but  suffered  in  consequence. 

3d,  That  this  mutual  interest  exists  between  any  two 
nations,  whether  they  have  direct  commercial  intercourse 
or  not.  For  example  :  there  may  be  a  German  principality 
that  purchases  nothing  of  the  United  States,  yet  it  may  pur- 
chase largely  of  the  cotton  yarn  of  England.  That  causes 
a  demand  for  American  cotton ;  that  benefits  the  Southern 
States ;  that,  in  turn,  helps  the  trade  of  the  North ;  and 
that,  again,  the  producers  of  the  West,  on  whom  the  North 
depends  for  agricultural  supplies. 

By  such  ramifications,  exchange  extends  itself  through 
the  world. 

4th,  Since,  by  the  laws  of  trade,  those  countries  which  lie 
most  remote  from  each  other,  and  are  most  unlike  in  soil, 
climate,  civilization,  and  ethnical  characteristics,  are  most 


84  EXCHANGE.  [BOOK   III. 

neaily  united  by  commerce,  it  is  shown,  that,  by  this  terri- 
torial division  of  labor,  the  most  extended  production  and 
the  most  beneficent  distribution  of  all  the  commodities 
of  the  earth  are  secured ;  and  that,  if  any  nation  creates  an 
article  of  peculiar  desirableness,  it  is  placed  within  the 
reach  of  all.  Every  invention  or  improvement  becomes,  in 
this  way,  the  common  property  of  mankind. 

5th,  That  commerce  harmonizes  all  differences  in  the 
industry  of  the  world. 

"  All  Nature's  difference  makes  all  Nature's  peace." 

Any  natural  impediment  or  artificial  obstruction  to  the 
intercourse  of  nations,  in  fact,  so  far  injures  the  production 
and  trade  of  all. 

"  A  commercial  nation,"  says  Sir  James  Mackintosh, 
"  has  the  same  interest  in  the  wealth  of  her  neighbors  that 
a  tradesman  has  in  the  wealth  of  his  customers.  .  .  .  Not  an 
acre  of  land  has  been  brought  into  cultivation  in  the  wilds 
of  Siberia,  or  on  the  shores  of  the  Mississippi,  which  has 
not  widened  the  market  for  English  industry." 

6th,  That  commerce  diminishes  the  number  of  wars,  and 
shortens  their  duration. 

There  may  have  been  a  time  when  the  galleons  of  Spain 
and  the  Indiaman  of  England  bringing  home  the  stored 
treasures  of  barbarism  influenced  the  cupidity  of  govern- 
ments to  the  point  of  war.  But  as  commerce  abandoned 
the  spoils  of  conquest  for  the  honest  industry  of  the  world, 
as  its  field  became  widened,  its  connections  more  intimate, 
its  benefits  more  popular,  the  temptation  to  plunder  and 
violence  died  away.  The  advantages  of  a  peaceful  partici- 
pation in  trade  are  greater  to  every  people,  even  those  least 
maritime,  than  all  that  could  be  hoped  from  the  ravages  of 
a  Drake  or  a  Doria.  The  whole  interest  of  commerce  is 
now  the  inalienable  ally  of  peace.  It  has  not  been  found 
sufficient,  thus  far,  to  prevent  all  wars.  But  it  enters  into 
negotiations,  tempers  grievances,  and  delays  violence.    And 


CHAP.  II.]  OBSTRUCTIONS  TO  TRADE.  85 

when,  in  spite  of  its  admonitions,  war  is  declared  and  waged, 
it  remains  still  an  argument  for  peace  more  impressive  and 
influential  by  reason  of  the  distresses  and  inconveniences 
attending  the  loss  of  accustomed  traffic. 


CHAPTER  n. 

OBSTRUCTIONS    TO    TRADE. 

These  are  of  three  kinds  :  — 

First,  physical,  which  are  natural ;  second,  social,  which 
are  incidental ;  third,  legal,  which  are  conventional. 

Looking  at  these  in  the  light  of  what  has  gone  before,  we 
shall  be  inclined  to  regard  them  as  so  much  imposed  as 
a  burden  on  industry,  shackling  the  movements  of  capital 
and  labor. 

But  they  have  been  presented  in  another  aspect,  as  if 
there  were  compensations  for  this  hinderance  of  spontane- 
ous trade  ;  and  to  this,  also,  we  will  attend. 

Inasmuch,  therefore,  as  these  obstructions  to  trade  have 
been  regarded  as  the  protection  of  local  industry,  and  on  that 
account  have  been  received  with  favor  by  scientific  men  and 
rulers,  we  shall  speak  of  them  as  different  forms  of  protec- 
tion. The  propriety  of  the  term  "  protection "  we  shall 
discuss  at  another  point. 

1st,  Physical  protection. 

This  results  from  obstacles  which  Nature  interposes. 
They  may  all  be  expressed  by  the  single  term  "  location." 
The  wheat  of  Vermont  has  a  protection  in  its  own  markets 
as  against  the  wheat  of  Illinois,  to  the  extent  of  all  the  cost 
of  transportation  from  the  latter  to  the  former  State.  If 
the  cost  of  transportation  and  attendant  charges  are  fifty 
cents  per  bushel,  then  the  farmers  of  Vermont  can,  as  far 
as  competition  from  Illinois  is  concerned,  continue  to  sell 


86  EXCHANGE.  [BOOK  HI. 

their  wheat  until  they  reach  a  price  fifty  cents  per  bushel 
greater  than  they  could  obtain  but  for  this.  All  this  may 
not  much  enrich  the  farmer ;  for  the  greater  price  may  be 
rendered  necessary  by  the  additional  labor  required.  But, 
at  any  rate,  it  assists  him  in  selling  just  so  much.  On  the 
other  hand,  the  mechanic  of  Vermont  must  pay  more,  up 
to  fifty  cents,  for  a  bushel  of  wheat.  The  protection  of  the 
farmer,  though  a  natural  one,  is  at  the  expense  of  the  con- 
sumer. The  mechanic,  in  so  far  as  his  bread  is  concerned,  is 
placed  at  a  disadvantage  in  production,  in  competition  with 
those  who  can  purchase  their  wheat  at  the  prices  of  Illinois. 
It  costs  him  more  to  live :  he  must,  therefore,  charge  more 
for  his  wares,  and,  of  course,  sell  less. 

If,  now,  the  introduction  of  railroads  reduces  the  cost  of 
transportation  to  twenty-five  cents,  the  Vermont  farmers 
have  lost  half  their  protection.  The  consequence  of  this 
will  naturally  be,  that  some  of  that  class  in  Vermont  will 
become  mechanics,  because  the  latter  class  has  gained  what 
the  former  has  lost,  by  the  reduction  in  the  cost  of  transpor- 
tation. Any  thing  which  reduces  the  price  of  agricultural 
products  has  a  tendency  to  increase  all  other  branches  of 
production. 

This  protection  amounts  generally  to  an  entire  prohibition 
of  the  foreign  article  in  the  case  of  certain  manufactures, 
such  as  houses,  barns,  stores,  &c,  which  might  often  be 
erected  more  conveniently  and  cheaply  than  in  the  country 
where  they  are  to  be  occupied ;  but  the  cost  of  transporta- 
tion puts  it  out  of  the  question,  except  in  cases  where  the 
local  facilities  are  very  crude  and  insufficient.  There  have 
been  great  numbers  of  houses  sent  out  by  ship  to  California 
and  Australia ;  and  there  are,  even  now,  remaining  in  the 
eastern  portion  of  the  United  States,  houses  which  were 
framed  in  the  old  world,  or  which  are  made  of  brick  import- 
ed from  England.    • 

Yet,  looking  to  the  whole  of  things,  we  find  that  this  class 
of  protection  builds  up,  in  every  country,  an  amount  of 


CHAP.  II.]  OBSTRUCTIONS   TO   TRADE.  87 

manufacturing  and  mining  industry,  often  amounting  to 
one-half  of  its  consumption  in  that  line. 

Such  a  protection  to  industry  being  in  the  nature  of 
things,  and,  in  fact,  being  the  very  condition  of  material 
existence,  we  have  no  more  call  to  inquire  whether  it  is 
desirable  than  we  have  to  ask  the  same  concerning  weight. 
It  exists,  and  must  continue.  The  effect  of  it  may  be  less- 
ened by  man's  contrivances,  but  can  never  be  annihilated. 
Those  very  contrivances  will  be  among  the  effects  of  it. 

In  a  certain  sense,  and  to  a  degree,  such  obstructions, 
even  when  apparently  removed,  still  continue  to  exert  a  pro- 
tection on  local  industry.  Suppose,  for  example,  a  swamp, 
near  a  certain  town,  requires  a  detour  of  many  miles  for 
all  passengers  and  freight.  It  is  a  natural  protection  on 
the  industry  of  the  place.  If,  now,  a  causeway  is  con- 
structed or  the  swamp  drained,  so  that  the  difficulty  of 
travel  is  avoided,  the  protection  is  removed,  unless,  indeed, 
it  exists  in  the  form  of  the  debt  incurred  for  drainage.  In 
either  case,  the  people  are  relieved  of  a  certain  amount  of 
labor  once  indispensable ;  and,  though  their  "  protection  " 
has  been  removed,  their  industry  has  been  greatly  bene- 
fited. 

In  the  prodigious  enterprises  undertaken  by  science  and 
labor  for  removing,  in  every  direction,  obstacles  to  uninter- 
rupted communication,  do  we  not  find  the  best  practical 
commentary  on  all  artificial  and  conventional  arrangements 
for  putting  countries  further  apart  by  imposing  restrictions 
on  commerce  ?  If  the  approach  of  foreign  industry  is  unde- 
sirable, it  is  an  economic  curse,  that  the  steamship  and  the 
Indiaman  have  replaced  the  galleys  of  Columbus  or  the 
triremes  of  Themistocles.  Let  the  ocean  be  turned  to 
quicksand,  and  the  earth  to  mire ;  that  so  the  mutual  hurt- 
fulness  of  nations  may  cease  in  an  entire  impossibility  of 
reaching  each  other. 

The  second  of  the  modes  of  protection  is  what  we  have 
termed   social.     We  have  also  called   it  incidental,  there 


88  EXCHANGE.  [BOOK   III. 

being  no  original  intention  to  affect  the  direction  of  labor. 
It  arises  from  social  obstructions  or  political  disturbances. 
These  increase  the  protection  afforded  the  interests  of  par- 
ticular localities.  A  most  impressive  illustration  is  found 
in  the  results  of  the  war  of  the  Rebellion  in  the  United 
States.  The  production  and  sale  of  cotton  was  greatly  hin- 
dered, and,  for  a  time,  almost  annihilated.  This  operated  as 
an  immense  protection  to  the  cotton  of  India  and  Egypt, 
where,  before,  the  culture  was  comparatively  unprofitable. 
Yet,  under  the  encouragement  of  the  American  war,  it  be- 
came more  advantageous  than  any  other  branch  of  industry. 
Indeed,  so  largely  was  it  raised  in  India,  that  the  country 
increased  in  wealth  at  a  rate  quite  astonishing,  and  a  great 
industrial  revolution,  for  the  time  at  least,  was  effected. 
But  it  was  at  a  heavy  expense  to  all  other  peoples  and 
countries.  What  India  gained,  Europe  and  America  lost; 
the  former  as  producer,  the  latter  as  consumer.  The  wealth 
of  the  world  was  not  increased,  but  greatly  diminished,  and 
its  natural  and  healthy  commerce  widely  deranged. 

Even  India  itself  has  not  been  permanently  benefited  by 
the  extraordinary  demand  for  her  cotton.  The  return  of 
peace  in  the  United  States,  bringing  down  the  price  of  her 
great  staple,  has  caused  extensive  bankruptcy  and  great 
commercial  distress.  The  season  of  artificial  prosperity 
led  to  the  wildest  extravagance  and  speculation,  to  the 
neglect  of  the  culture  of  rice  and  other  needful  crops,  so 
that  the  event,  which,  for  a  while,  brought  unwonted  pros- 
perity, must,  in  the  end,  produce  equal  depression  and 
suffering. 

In  some  countries,  the  despotic  rapacity  of  the  govern- 
ment, and  the  violence  and  fraud  that  pervade  society,  serve 
as  a  great  protection  to  the  industry  of  others,  by  diminish 
ing  personal  safety  and  business  security  in  trade.  Such 
an  element  affords  the  same  encouragement  to  others  as 
the  introduction  of  a  bear  into  one  store  would  give 
to  the  sales   of  others.     It  plainly  reduces   the  quantity 


CHAP.   II. J  OBSTEUCTIONS  TO   TRADE.  89 

or  quality  of  inducements  that  can  be  held  out  to  buyers 
in  the  community  where  the  disturbance  or  disorder  ex- 
ists. 

Suppose  the  Gulf  of  Mexico  to  be  infested  with  pirates,  so 
that  the  danger  to  life  and  risk  of  property  should  double 
the  price  of  sugar  brought  from  New  Orleans  to  New  York. 
This  increase  of  price,  caused  by  the  cost  of  insurance 
against  robbery  and  murder,  so  long  as  it  lasted,  would  be 
a  protection  to  that  extent  to  the  cultivation  of  maple  sugar 
in  the  North. 

War,  under  all  circumstances,  whatever  the  occasion  or 
result,  whether  between  different  nations  or  parts  of  the 
same,  always  has  the  effect  of  disturbing  trade,  arresting 
all  the  healthful  agencies  of  production,  and  disturbing  the 
harmony  of  the  economic  world. 

3d,  The  last  of  the  modes  of  protection  is  what  we  have 
called  legal.  It  is  purely  conventional,  and  arises  with  the 
direct  purpose  of  affecting  production,  or,  at  least,  with 
the  expectation  that  such  will  be  the  result.  This  is  effected, 
firstly,  by  the  prohibition  of  imports  from  one  or  all  nations ; 
secondly,  by  a  direct  premium  on  the  products  of  home 
industry  ;  or,  thirdly,  by  the  imposition  of  duties  on  the  for- 
eign article. 

The  former  method  is  so  violent  and  extreme  as  to  be 
entirely  out  of  the  sympathies  of  modern  economy  and 
statesmanship.  In  so  far  as  it  exists,  it  intends  to  destroy 
trade.  It  may  arise  during  a  state  of  war,  or  in  greatly 
embittered  controversies  for  purposes  of  injury  or  revenge ; 
in  which  case  its  effects  are  to  be  regarded  rather  as  be- 
longing to  a  state  of  war,  and  as  incidental  to  it,  though 
brought  in  by  specific  enactment. 

The  second,  though  used  at  different  times  and  in  differ- 
ent countries,  has  never  been  a  favorite  with  governments, 
although  it  is  by  far  the  most  economical  mode  of  giving 
encouragement  to  a  particular  branch  of  industry.  An 
illustration  of  the  great  advantage  of  this  mode  of  protec- 


90  EXCHANGE.  [BOOK   III. 

tion  over  that  of  laying  duty  on  exports  will  be  given  in  our 
chapter  on  national  taxation. 

We  shall  have  to  do,  then,  only  with  that  kind  of  legal 
protection  which  is  secured  by  the  imposition  of  duties  on 
imports.  This  has  been  the  practice  of  nations  generally, 
in  a  greater  or  less  degree,  and  so  with  more  or  less  effect. 
England  formerly  laid  taxes  on  four  hundred  articles  brought 
into  her  ports  from  France.  The  United  States  has  always 
maintained  a  system  of  import  duties  of  a  varying  character, 
sometimes  directed  to  one  object  and  sometimes  to  another, 
as  the  popular  feeling  went. 


CHAPTER  III. 

PROTECTION. 

Legal  protection  may  be  imposed  from  one  or  more  of 
four  general  reasons :  — 

1st,  To  raise  a  revenue. 

2d,  To  encourage  the  production  of  certain  commodities 
at  home. 

3d,  To  support  existing  forms  of  production. 

4th,  To  secure  commercial  independence. 

All  these  will  be  examined  in  detail. 

1st,  To  raise  a  revenue.  So  far  as  this  is  the  only  con- 
venient way  in  which  the  state  can  raise  a  certain  sum  of 
money  which  it  must  have,  it  is  but  a  mode  of  taxation,  with 
which  we  have  no  present  concern.  So  far  as  it  also  affects 
industry,  it  becomes  a  species  of  protection.  We  have  not 
called  it  incidental,  because  its  bearing  on  industry  is  known 
and  considered  in  its  imposition.  So  far  as  the  element  of 
protection  remains,  it  should  be  subject  to  the  judgment 
which  shall  be  pronounced  on  what  follows.  If  the  "  pro- 
tection "  of  certain  domestic  products  be  found  a  good,  then 
the  revenue  duties  should  be  so  disposed  as  to  afford  them 


CHAP.  III.]  PROTECTION.  91 

all  possible  assistance  at  the  same  time  that  it  serves  the 
public  purse.  If,  on  the  other  hand,  it  is  decided  to  be  mis- 
chievous to  substitute  man's  law  for  Nature's,  such  revenue 
duties  should,  as  far  as  may  consist  with  the  public  safety, 
be  imposed  on  articles  where  it  will  not  mislead  industry. 

2d,  To  encourage  the  growth  or  manufacture  of  certain 
commodities  at  home.  This  is  the  field  in  which  protection 
joins  battle  of  choice  with  freedom  of  industry.  In  all  the 
other  particular  reasons,  its  argument  is,  as  we  shall  see, 
linked  with  some  real  or  fancied  necessity ;  but  here  protec- 
tion takes  ground  freely  and  fairly,  virtually  making  two 
propositions  which  it  assumes  to  defend :  — 

First,  that  the  desires  of  man,  as  an  industrial  being,  are 
so  blind,  so  passionate,  or  so  weak,  as  to  require  correction 
by  the  public  will,  enlightening,  chastening,  or  stimulating. 

Second,  that  the  efforts  of  man,  as  an  industrial  being, 
are  not  sufficient,  of  themselves,  to  achieve  the  satisfaction 
of  desires,  without  the  aid  of  law,  coercing  him  to  that 
which  he  would  not  voluntarily  undertake. 

What  is  industrially  wanting,  then,  in  man's  nature,  either 
individually  or  in  voluntary  association,  is  to  be  supplied  by 
such  enactments  as  are  called  protective. 

We  will  inquire  about  the  second  of  these  propositions, 
with  the  view  of  reducing  both  to  one. 

Man's  industrial  efforts  can  never  be  assisted  in  produc- 
tion by  any  legal  enactment.  Deriving  all  value  from  labor, 
we  have  here  an  adamantine  basis,  which  no  sophistry  can 
move.  Laws  may  be  supposed  to  stimulate  desires,  or  to  re- 
press them  ;  but  they  cannot  lay  hand  on  man's  labor,  except 
to  hinder  it.  It  is  a  power  given  by  the  Creator,  to  work 
upon  the  constant  properties  of  matter.  It  has  no  fellow 
in  its  work ;  its  only  tools  are  capital,  its  own  creature,  and 
nature,  whose  forces  are  fixed  by  God.  Labor  has  its 
commission  and  its  reward  in  itself.  Just  as  surely  as 
man  cannot  add  one  cubit  to  his  stature,  so  is  law  impotent 
to  help  man's  labor,  except  through  man's  desires. 


92  EXCHANGE.  [BOOK   ITT. 

There  is  another  reason,  more  abstract,  for  reducing  these 
two  propositions  to  one.  It  is,  that  the  efforts  men  will 
make  are  included  in  their  desires.  Those  efforts  are  those 
desires  going  out  after  their  objects.  Man's  work  is  man's 
want  active. 

We  have  thus  to  consider  only  the  first  proposition  in  the 
theory  of  protection ;  namely,  that  the  desires  of  man,  in 
the  economic  sense,  need  government  by  law.  Men,  as  con- 
sumers, are  to  be  shut  off  from  certain  objects  to  which  they 
naturally  incline  ;  and,  as  capitaMsts  or  laborers,  are  to  be 
shut  up  to  certain  efforts,  which,  so  far  as  the  legislation 
has  any  influence,  are  not  the  direct,  simple,  and  proper 
means  to  the  satisfaction  of  existing  wants.  And  all  this 
not  at  all  in  the  interests  of  morality  or  good  government, 
but  wholly  with  a  view  to  the  greater  wealth  and  industrial 
prosperity  of  the  community.  This  proposition  has  its  only 
basis  in  a  want  of  confidence  in  the  intelligence  of  the  peo- 
ple to  direct  their  own  desires,  and  of  the  competency  of 
labor  to  gratify  such  desires.  The  proposition  here  reaches 
a  point  where  there  is  no  argument.  Consciousness  and 
experience  must  affirm  or  deny  sharply  and  decisively.  Such 
wisdom  or  power,  we  believe,  has  not  been  vouchsafed  to 
legislators,  whether  absolute  or  representing  the  will  of  a 
people. 

Economically,  it  will  ever  remain  true,  that  the  govern 
ment  is  best  which  governs  least.  The  wants  of  a  people 
are  the  sole  proper,  the  sole  possible,  motives  for  production. 
Nothing  can  be  substituted  for  them.  Any  thing  that  seems 
to  take  their  place  is  merely  a  debasement  of  them.  The 
interests  of  producers,  whether  laborers  or  capitalists,  secure, 
better  than  any  other  possible  means,  the  gratification  of 
such  wants.  Their  intelligence  is  always  superior  on  such 
points  to  that  of  any  foreign  body.  These  we  believe  to  be 
absolute  affirmations  of  universal  experience,  not  dependent 
on  reasoning,  not  condescending  to  argument. 

General  proposition :  There  is  no  sense  so  subtile  as  that 


CHAP.  III.]  PROTECTION.  93 

with  which  a  man  detects  his  own  wants.  There  is  no  spur 
so  sharp  as  that  which  urges  hirn  to  satisfy  them. 

This  is  all  the  defence  it  seems  necessary  to  make  against 
the  direct  attack  of  the  protection  theory.  It  will  be  more 
troublesome  when  we  meet  it  in  alliance  with  other  in- 
terests, on  ground  not  its  own,  and  displaying  uncertain 
colors. 

If,  then,  protection  is  founded  on  false  economical  prin- 
ciples, we  should  expect  to  find  it  working  mischief  in  its 
application  to  national  industry,  perverting  the  desires,  crip- 
pling the  efforts,  and  plundering  the  satisfactions  of  society. 

Since  the  subject  is  of  great  practical  importance  and  of 
great  popular  interest,  we  will  take  an  illustration  at  length 
from  the  history  of  American  industry,  exhibiting  the  prin- 
ciples thus  far  attained. 

We  choose  the  manufacture  of  iron,  for  six  reasons :  — 

1st,  Because  it  may  be  produced  in  great  amount  in  our 
own  country,  and  is  found  in  almost  all  others.  There  is, 
therefore,  nothing  of  the  nature  of  a  monopoly  about  it. 

2d,  Because  it  enjoys  the  largest  natural  protection  arising 
from  its  weight  and  bulk. 

3d,  Because  it  is  one  of  the  most  simple  of  all  manu- 
factures. 

4th,  Because  it  has  been  tried  on  a  large  scale,  affording 
material  for  great  inductions,  and  freeing  the  results  from 
any  imputation  of  accident. 

5th,  Because  the  public  attention  has  been  turned  to  it  for 
a  long  time,  and  it  is  better  understood  than  any  other  we 
could  name. 

6th,  Because  a  stronger  argument  can  be  made  in  favor 
of  its  receiving  governmental  protection  than  any  other. 

What  is  the  fact  in  regard  to  the  manufacture  so  de- 
scribed ?  At  present,  iron  cannot  be  so  cheaply  and  exten- 
sively produced  in  the  United  States  as  to  exclude  the 
foreign  article.     Why  is  this  ?     We  answer  negatively :  — 

1st,  Not  that  we  do  not  know  how  to  make  it.     Being,  as 


94  EXCHANGE.  [BOOK   III. 

has  been  said,  the  most  simple  of  all  manufactures,  we  have 
had,  from  the  earliest  settlement  of  the  colonies,  the  neces- 
sary knowledge,  and  have  produced  it  from  our  colonial 
days. 

2d,  Not  that  we  have  not  sufficient  capital.  No  branch  of 
business  is  more  accessible  than  iron-making,  or  requires 
less  capital  proportionally.  As  a  matter  of  fact,  the  busi- 
ness was  commenced  with  little  difficulty,  and  we  succeeded 
up  to  a  certain  point.  Had  it  been  as  profitable  as  other 
branches  of  industry,  it  would,  like  the  manufacture  of 
boots  and  shoes,  have  been  extended  to  the  full  demands 
of  the  country.  Yet  the  latter  industry  has  been  carried 
nearly  to  the  full  demand.  The  former  has  stopped  far 
short  of  it. 

It  is  to  be  observed,  in  this  connection,  that  a  successful 
business,  once  started,  creates  its  own  capital.  Labor  no 
more  seeks  assistance  from  capital,  than  capital  employment 
by  labor.  Every  year  of  profitable  enterprise  affords  a  sur- 
plus, which  can  be  applied  to  the  increase  of  business  more 
efficiently  than  twice  the  amount  of  raw  capital,  coming  in 
the  lump.  The  daily  or  monthly  increments  are  applied 
with  an  aptness  and  a  promptness  that  make  them  far  more 
useful  than  wholesale,  occasional  accessions  of  capital  from 
abroad. 

3d,  Not  that  we  have  not  the  best  natural  facilities  for  the 
manufacture. 

Five  great  conditions  of  success  are  found  most  remarkably 
in  the  United  States,  —  (a)  Our  ore  is  not  only  of  excellent 
quality  and  most  abundant,  but  (£>)  is  found  very  generally 
on  the  surface  and  (c)  in  proximity  to  the  best  rives  Naviga- 
tion, and  almost  always  in  close  juxtaposition  to  (o?)  coal 
for  smelting,  and  (e)  limestone  for  flux.  Perhaps  in  no 
other  country  of  the  world  are  these  requisites  so  fully  se- 
cured. The  absence  of  a  single  one  of  them  might  be  suffi- 
cient to  destroy  the  prospect  of  production. 

The  importance  of  this  element  will  be  seen  in  the  follow- 


CHAP.  HI.]  PROTECTION.  95 

ing  remarks  from  Dr.  Allen's  excellent  work  on  "India, 
Ancient  and  Modern  :  "  — 

"  India  has  valuable  iron  mines  (the  writer  once  heard  a  distin- 
guished geologist,  who  had  been  inspecting  them,  say  they  contained 
iron  enough  to  supply  the  world)  ;  and  yet  nearly  all  the  iron  used 
in  the  country  is  procured  from  Europe,  because  the  iron  mines 
are  in  one  province,  and  the  coal  is  in  another." 

4th,  Not  that  the  manufacture  here  lacks  a  good  natural 
protection.  America  has  been  put  at  a  great  distance  from 
Europe.  The  effects  of  such  a  protection  we  have  already 
seen.  The  foreign  product  is,  in  this  case,  charged  with 
freight  and  insurance  for  a  voyage  of  three  thousand  miles. 
This,  with  articles  having  little  bulk  or  weight  for  the  value, 
might  not  serve  as  a  great  encouragement  to  the  home  pro- 
duct ;  but,  with  iron,  it  is  a  very  considerable  item. 

Why,  then,  with  all  these  facilities,  do  we  not  produce  all 
our  iron  without  governmental  protection  ?  There  is  but 
one  reason. 

We  can  do  better.  We  can  obtain  our  iron  with  less 
labor  than  by  making  it. 

How  can  this  be  ?  Because,  though  we  have  facilities  for 
making  iron,  greater  perhaps  than  any  other  people,  we  have 
still  greater  facilities  for  raising  agricultural  products. 

We  can  raise  forty  bushels  of  wheat  with,  say,  twenty  days' 
labor  that  will  purchase  a  ton  of  iron,  to  produce  which 
would  cost  twenty-five  days'  labor :  net  saving,  five  days,  or 
twenty  per  cent  on  all  our  iron. 

What  is  the  explanation  of  this  state  of  things  ? 

Land  is  an  instrument,  and  the  greatest  of  all,  in  pro- 
ducing agricultural  values.  Good  arable  land,  on  which 
wheat  is  raised  in  England,  is  worth,  say,  two  hundred  dol- 
lars an  acre. 

In  this  country,  the  same  is  worth,  say,  twenty  dollars.* 

*  Often  not  a  fourth  part  of  that  sum.  The  government  holds  the  host 
wheat  land  at  one  dollar  and  twenty-five  cents,  and  gives  it  away  to  actual 

settlers. 


96  EXCHANGE.  [BOOK   HI. 

Then,  with  our  price  of  land,  we  have  the  advantage,  so  far, 
over  the  European,  in  the  production  of  crops,  of  nine-tenths, 
or  ninety  per  cent.  Our  capital  in  land  is  ten  times  as  pro- 
ductive as  that  of  England.  On  the  other  hand,  we  have 
not  an  equal  advantage  over  the  European  in  making  iron  ; 
for,  although  it  costs  him  more  labor  (and  labor  is,  as  we 
have  said,  the  chief  item  in  making  iron),  that  labor  costs 
him  much  less  per  day  than  it  costs  us ;  say,  at  least,  fifty 
per  cent  less.  So  that,  if  it  is  estimated  to  cost  him  twice 
as  much  labor  to  make  iron,  still  labor  costs  him  no  more  in 
money  than  ours  costs  us.  In  respect  of  labor,  then,  we  are 
on  a  level. 

So  far  as  money,  as  capital  is  concerned,  the  European 
again  has  the  advantage  of  us  by  fifty  per  cent,  since 
money  is  as  well  worth  eight  per  cent  here  as  four  per 
cent  there. 

Now,  these  facilities  which  the  European  has,  from  the 
cheapness  of  labor  and  capital,  counterbalance  to  a  great 
extent,  if  not  fully,  the  advantages  which  we  have  from  the 
ease  with  which  we  can  get  the  materials  of  which  iron  is 
made. 

If  so,  in  getting  our  iron  by  raising  wheat,  we  have  the  net 
advantage  over  the  European  of  ninety  per  cent  in  the  land, 
which  is  the  great  item  of  expense  in  such  products ;  so 
much  so,  indeed,  that  the  pure  rent  of  farms  in  England 
is  estimated  to  equal  the  entire  wages  of  the  agricultural 
laborers. 

Thus  it  is  that  our  unequalled  natural  advantages,  aris- 
ing from  cheap  virgin  lands,  render  it  unprofitable  for  us 
to  make  iron,  or  engage  in  many  other  kinds  of  manufac- 
tures. 

Such  is  the  situation.  We  will  now  apply  protection. 
Government,  in  1816,  laid  a  duty  of  thirty  dollars  per  ton 
on  bar  iron ;  equal  to  about  fifty  per  cent  on  the  cost  of 
the  foreign  article.  Let  us  inquire  into  the  effect  of  this 
policy. 


CHAP.  III.]  PROTECTION.  97 

1st,  Iron  was  produced.  Labor  and  capital  were  at  once 
withdrawn  from  other  occupations,  and  invested  in  furnaces 
and  iron-making.  We  undertook  to  make  iron  ourselves, 
under  the  belief,  that,  with  a  protection  of  thirty  dollars  per 
ton,  the  manufacture  would  be  found  very  profitable.  So 
far,  the  object  of  the  duty  was  accomplished. 

2d,  A  great  loss  was  caused  to  the  general  production  of 
the  country.  Labor  and  capital  were  withdrawn  from  pur 
suits  of  ordinary  profitableness,  and  invested  in  business 
that  required  fifty  per  cent  protection  to  make  it  profitable 
at  all.  If  the  duty  was  necessary  to  establish  the  manufac- 
ture in  1816,  as  it  was, —  for  a  still  higher  protection  was 
called  for,  —  does  it  not  follow,  that,  on  the  whole  amount 
made  under  the  forced  system  of  production,  there  was  a  loss 
to  the  country  of  thirty-three  and  one-third  per  cent ;  thirty- 
three  and  one-third  per  cent  of  ninety,  the  enhanced  price, 
being  fifty  per  cent  on  sixty,  the  original  price  ?  * 

Is  it  possible  that  there  can  be  any  doubt  of  this  ?  The 
production  of  wealth  was  decreased  so  much.  The  enhanced 
price,  thirty  dollars  per  ton,  took  the  following  form :  — 

*  It  should  be  understood  that  there  can  be  no  greater  discount  than  one 
hundred  per  cent,  which  takes  the  ichole  of  any  thing;  yet  there  are  men  who 
profess  to  be  learned  and  even  well  versed  in  financial  matters,  who  speak 
very  flippantly  of  two  hundred  or  five  hundred  per  cent  discount.  Professor 
Fawcett,  in  his  "  Manual  of  Political  Economy,"  page  365,  says,  "  Mr.  Glad- 
stone has  been  confident  in  his  belief  that  a  reduction  of  one  hundred  per  cent, 
in  the  price  of  inferior  French  wines,  will  cause  those  wines  to  be  purchased 
by  classes  of  society  in  this  country  who  have  never  before  purchased  them  ; 
and,  therefore,  the  consumption  will  increase  more  than  one  hundred  per 
cent."  Certainly,  Mr.  Gladstone  is  right  in  supposing  the  consumption  would 
be  increased  more  than  one  hundred  per  cent,  if  the  price  were  reduced  one 
hundred  per  cent ;  but  it  seems  almost  incredible  that  the  Chancellor  of  the 
Exchequer  could  have  used  the  expression  attributed  to  him.  The  fact  that 
Professor  Fawcett  himself  could  write  in  tins  manner  shows  the  importance 
of  having  the  exact  meaning  of  the  term  "  discount "  defined  and  determined. 
A  writer  in  one  of  the  most  respectable  magazines  in  New  York  lately  stated 
that  a  certain  commodity  "  had  fallen  six  hundred  per  cent."  Occurrences 
of  this  kind  are  frequent.  The  difficulty  in  the  case  seems  to  be,  that  discount 
and  premium  (or  advance)  are  confounded.  The  first  is  limited  to  one  hun- 
dred, the  latter  is  illimitable. 

7 


98  EXCHANGE.  [BOOK   in. 

Suppose  the  consumption  of  the  United  States  at  that 
time,  1816,  to  have  been  eighty  thousand  tons  per 
annum,  and  that,  under  the  system  of  protection,  we 
made  twenty  thousand  tons,  importing  the  balance ; 
there  was,  then,  paid  duty  on  sixty  thousand  tons, 
at  thirty  dollars $1,800,000 

Twenty  thousand  tons  made,  at  a  price  enhanced  by 

thirty  dollars 600,000 

Total  enhanced  cost  to  the  people  *    .     .     .     .     $2,400,000 

Now,  as  the  iron-masters  did  not  get  more  than  the  average 
rate  of  profits,  the  entire  six  hundred  thousand  dollars  was 
lost  to  the  country,  both  to  people  and  government.  The 
sum  of  one  million  and  eight  hundred  thousand  dollars  went 
to  the  national  revenue.  The  protection  of  iron  cost  two 
million  and  four  hundred  thousand  dollars,  the  people  pay- 
ing a  tax  not  the  less  on  the  domestic  than  on  the  foreign 
product. 

But  the  real  loss  to  the  country  was  much  greater,  be- 
cause,— 

3d,  Many  wasteful  and  disastrous  experiments  were  made. 
"When  any  branch  of  industry  grows  up  naturally,  it  com- 
mences upon  a  small  scale,  and  is  cautiously  extended,  as 
found  profitable.  Under  a  forced  system,  it  is  quite  other- 
wise.    A  duty  of  thirty  dollars  a  ton  is  laid  upon  iron. 

Pennsylvania  is  full  of  iron  ore  and  coal.  What  prevents 
her  from  making  a  vast  sum  by  it  ?  Has  she  not  a  protec- 
tion of  fifty  per  cent  ?  So  everybody  reasons ;  so  everybody 
acts.  Great  establishments  are  started  at  once.  There  is 
no  occasion  longer  to  consult  adaptations  of  character,  expe- 
rience in  business,  or  local  economy.  Success  and  fortune 
are  secured  to  all  by  omnipotent  protection.  Men  plunge 
headlong  into  the  work,  if,  indeed,  they  suppose  it  to  be  any 
thing  so  serious  as  work.  Merchants,  professional  men, 
farmers,  mechanics,  all  are  seized  with  the  mania  of  iron- 
making.  Large  iron  works  are  hastily  and  ignorantly  got  up. 
*  Besides  all  the  profits  charged  on  the  duties  and  enhanced  cost  of  the  iron. 


CHAP.  III.]  PKOTECTION.  99 

Incompetent  heads  manage  them. 

Inexperienced  hands  work  in  them. 

Imperfect  iron  comes  out  of  them. 

Inevitable  loss  attends  them. 

Insolvency  is  the  end  of  them. 

And  the  iron  interest  clamors  loudly  and  successfully  for 
more  protection.  Fifty  per  cent  is  not  enough  for  the  people 
to  pay  extra  on  iron.  These  are  not  accidental  or  peculiar 
results,  but  natural  and  certain,  where  the  great  laws  of 
trade  and  the  even  course  of  production  are  disturbed. 

"We  have  seen  these  marked  effects  of  protection  in  the 
'protected  country.     How  of  the  excluded  country? 

Just  so  far  as  the  "  protection  "  is  adequate,  England 
cannot  send  us  iron.  What  then  ?  So  much  of  her  iron 
trade  is  cut  off;  and  her  capital  and  industry  must  be  directed 
to  raising  wheat,  or  to  some  other  less  profitable,  productive, 
and  natural  employment.  A  part  of  it  is  forced  into  wheat- 
growing,  and  this  reduces  the  quantity  she  would  naturally 
require  of  American  wheat.  Her  industry  is  made  less  ad- 
vantageous ;  our  market  is  correspondingly  diminished.  So 
far  as  her  labor  cannot  find  employment,  it  must  emigrate, 
as  it  has  done  by  crowded  packet  lines,  to  Australia,  Canada, 
and  the  United  States. 

Which  country  will  be  most  injured  by  this  commercial 
warfare  ? 

We  answer,  decidedly,  the  protected,  because  England 
would  not  have  made,  on  the  iron  sent  us,  more,  say,  than 
ten  per  cent ;  while  we  make  a  clean  loss,  as  we  have  seen, 
of  some  thirty  or  forty  per  cent ;  that  is,  all  left  of  the  fifty 
per  cent  enhancement  of  price,  after  the  profits  of  the  Ameri- 
can manufacturer  are  deducted. 

But  it  may  be  urged,  that,  if  a  part  of  the  labor  of  the 
country  had  not  been  taken  from  agriculture,  its  products 
would  have  declined  in  value,  and  this  would  have  counter- 
balanced what  was  lost  by  the  manufacture  of  iron.  This  is 
a  favorite  view  with  a  certain  class  of  minds.     There  are 


100  EXCHANGE.  [BOOK   III. 

many  theorists  who  are  continually  foretelling  the  decline 
of  prices,  and  general  starvation ;  many  business  men,  who 
are  expecting  daily  to  exhaust  the  market,  and  reach  the 
limit  of  their  industry  ;  many  householders,  who  dread 
the  disappearance  of  fuel  and  light  from  the  earth,  with  un- 
told horrors  beside.  Such  persons  are  much  afraid  of  using 
nature  up. 

The  markets  of  the  world  being  open  to  us,  all  our  sur- 
plus products  would  remain  in  demand.  Provisions,  espe- 
cially, are  a  sort  of  "  legal  tender  "  the  world  over ;  and  there 
seems  to  be  no  immediate  occasion  to  anticipate  their  disuse. 
There  is  no  market  that  keeps  open  so  long  and  surely  as 
this.  The  English  ports  were  wrested  from  the  monopolists 
of  grain,  by  a  power  that  government  and  society  could  not 
resist,  —  the  power  of  indignant  want.  The  misfortune  of 
overdone  agricultural  products  is  one  that  statesmen  may 
well  leave  to  their  successors. 

But,  if  there  were  no  other  markets  open  but  those  at 
home,  there  would  be  a  certain  tendency,  not  at  all  frightful 
in  its  vehemence,  to  a  decline  of  prices,  in  a  country  like 
ours ;  because  an  agricultural  people,  under  favorable  cir- 
cumstances, always  produces  more  than  it  consumes,  and 
would,  sooner  or  later,  create  such  a  surplus  as  to  lower  the 
price.  Admitting,  then,  all  that  is  claimed  for  such  a  pos- 
sible glut,  let  us  inquire  into  the  results. 

As  soon  as  wheat,  to  take  it  as  the  exponent  of  all  agricul- 
tural products,  had  fallen  so  low  that  it  required  as  many 
days'  work  to  get  a  ton  of  iron  by  raising  wheat  as  by  work- 
ing the  ore,  the  manufacture  would  be  successfully  intro- 
duced. That  is  precisely  the  point  at  which  this  branch  of 
industry  would  legitimately  begin.  It  would  not  spring  up 
suddenly,  at  some  arbitrary  point,  but  grow  up  in  those 
places  where  the  natural  protection  was  most  felt,  and  facili- 
ties for  production  were  greatest ;  for  instance,  in  a  region 
for  from  any  considerable  market,  where  iron  could  only  be 
obtained  by  long  and  expensive  transportation,  where  the 


CHAP.  IV.]   FALLACIES  OP  PROTECTIVE  THEORY.         101 

land  was  not  adapted  to  wheat,  but  where  ore,  coal,  and  lime 
were  plentiful.  It  would  extend  to  all  parts  of  the  country 
where  it  was  as  advantageous  as  wheat-growing.  The  busi- 
ness would  be  introduced  without  any  disturbance  of  existing 
interests  ;  without  wild,  extravagant,  and  wasteful  experi- 
ments. It  would  be  a  natural  development  and  growth,  not 
an  arbitrary  creation.  It  would  feel  its  way  with  a  sense  as 
subtile  and  secure  as  that  with  which  the  plant  raises  itself 
into  a  world  of  big  trees  and  wild  tornadoes,  and  fierce,  rush- 
ing life. 


CHAPTER  IV. 

THE   FALLACIES   OF   THE  PROTECTIVE   THEORY. 

We  leave  now  the  illustrations  of  the  principles  of  protection, 
as  exhibited  in  the  manufacture  of  iron.  We  believe  we 
have  shown  the  unsoundness  of  all  that  political  philosophy 
which  proposes  to  substitute  artificial  for  natural  laws,  in 
production.  But  there  still  remains  some  popular  argu- 
ments, which  we  will  notice. 

1st,  It  is  claimed  as  good  policy  to  protect  "  an  infant 
manufacture"  until  it  is  well  established,  because  it  will 
then  take  care  of  itself,  and  ultimately  confer  great  wealth 
on  the  country.     Of  this  it  may  be  said  :  — 

(«)  There  is  no  assurance,  under  a  system  which  removes 
the  sole  test  of  usefulness  and  self-support  from  the  produc- 
tion of  a  people,  that  enterprises  will  not  spring  up  which 
never  will  come  to  maturity,  which  have  no  vital  force  of 
themselves,  which  exist  solely  by  reason  of  the  protection, 
and  will  never  become  remunerative.  If  good  enterprises, 
why  not  bad,  since  the  test  of  bad  or  good  has  been  with- 
drawn ?  In  such  a  rankness  of  unnatural  growth,  it  is  far 
more  likely  that  weeds  will  be  produced  than  useful  plants. 
Thus  the  whole  industry  of  a  country  may  become  perverted 


102  EXCHANGE.  [BOOK   III. 

and  falsified  by  removing  the  principle  of  competition.  There 
will  be  no  reason  for  healthful  industries  to  spring  up,  which 
will  not  also  give  life  to  such  as  are  weak,  tardy,  ephemeral ; 
to  such  as  are  parasitic  and  exhausting. 

(&)  Other  things  aside,  the  desirableness  of  raising  the 
"  infant "  will  depend  very  much  on  the  length  of  time  and 
total  cost  required  to  bring  it  to  full  age  and  size.  There 
have  been  nations  that  exposed  sickly  and  unpromising  chil- 
dren, holding  it  to  be  for  the  advantage  of  the  state  to  rear 
none  but  such  as  promised  to  become  vigorous  and  useful 
members  of  society.  Religion  and  humanity  have  changed 
this,  out  of  respect  for  the  image  of  God  found  in  every  hu- 
man creature  ;  and  now  the  cripple  and  the  idiot  are  reared 
tenderly  and  patiently.  But  the  protective  policy  extends 
the  same  kindness  and  forbearance  to  industry.  No  matter 
how  plainly  palsy,  scrofula,  or  fatuity  may  appear  in  the 
form  or  features,  the  infant  is  sure  of  an  affectionate  solid 
tude,  that  only  changes  to  become  more  anxious  as  the  infant 
gets  punier  and  weaker. 

France  protected  one  of  these  industrial  infants ;  i.e.,  the 
beet-sugar  culture.  Dr.  Wayland  said  of  it,  in  1837,  "  The 
present  protection  costs  one  million  and  four  hundred  thou 
sand  pounds  per  annum.  Suppose  this  to  continue  for 
twenty  years,  it  will  amount  to  no  less  than  twenty-eight 
million  pounds  sterling ;  the  interest  of  which,  at  five  per 
cent,  will  bring,  at  two  and  a  half  pence  per  pound,  one 
hundred  and  twenty-six  million  pounds  of  sugar,  or  nearly 
the  whole  annual  amount  of  sugar  now  consumed  in  France." 
In  1865,  we  can  say  that  this  child,  born  in  the  early  part 
of  the  great  Napoleon's  career,  has  not  yet  become  strong 
enough  to  walk  alone,  or  hardy  enough  to  take  the  air. 
Supposing  an  equable  annual  consumption  of  any  article,  it 
requires  but  common  school  arithmetic  to  show  that  a  pro- 
tection to  the  extent  of  fifty  per  cent,  continuing  for  eighteen 
years,  would  amount  to  a  sum,  which,  at  six  per  cent  inter- 
est, would  furnish  the  nation  in  that  article  to  the  end  of 


CHAP.  IV.]    FALLACIES  OF  PROTECTIVE  THEORY.        103 

time,  without  ever  paying  any  thing  more  for  it.  A  child 
that  is  so  costly  to  bring  up  ought  to  make  a  very  useful 
man ;  whereas  it  is  generally  true  that  such  children  have 
to  be  brought  up  three  or  four  times  over,  and  then  live  on 
the  poor-rates.  If  such  a  protection,  however,  were  to  be 
continued  only  eighteen  years,  and  the  necessity  for  it  then 
cease,  the  industry  having  become  self-supporting,  it  would 
yet  be  true  that  every  pound  would  have  two  prices,  added 
to  each  other :  one,  the  present  cost  of  making ;  the  other, 
interest  on  old  protection  equal  to  the  present  cost. 

In  fact,  iron  and  sugar  have  been  protected  in  this  country 
since  1816,  and  the  duties  still  continue.  And  all  for  what  ? 
Where  is  the  advantage  of  making  a  great  annual  sacrifice, 
for  a  long  time,  to  establish  an  industry  that  will  grow  up 
of  itself  as  soon  as  it  will  pay,  as  was  growing  up  slowly, 
but  successfully,  before  there  was  any  protection  ? 

(c)  Finally,  no  sound  and  healthful  manufacture  needs 
protection  at  all.  The  phrase  "  infancy  "  is  entirely  soph- 
istical, as  applied  to  any  branch  of  legitimate  industry. 
Each  one  comes  full-grown  and  full-armed  into  life.  We 
do  not  mean  that  it  has  no  growth,  as  far  as  extension  is 
concerned.  It  certainly  does  go  on  from  town  to  town,  from 
State  to  State,  out  of  small  beginnings.  But  there  is  no 
infancy,  so  far  as  completeness  or  robustness  of  life  is  con- 
cerned. Suppose,  for  example,  that  there  was  but  one  man- 
ufacturer of  iron  in  the  country,  and  he  produced  only  to  the 
amount  of  five  thousand  dollars  a  year.  Yet,  if  he  could 
bring  to  the  market  as  good  and  cheap  an  article  as  the 
foreigner,  he  would  be  none  the  worse  for  being  a  solitary 
producer  on  some  mountain  in  Pennsylvania.  The  secu- 
rity of  any  manufacture  does  not  reside  in  the  number  of 
those  engaged,  but  in  its  power  to  meet  the  public  wants. 
However  few  may  be  employed,  however  humble  their  be- 
ginnings, they  stand  simply  in  their  ability  to  sell  a  good 
article  at  a  reasonable  price,  and  are  as  strong  in  this  as 
ever  was  the  proudest  guild  of  London. 


104  EXCHANGE.  [BOOK   III. 

Of  course,  there  is  a  period  in  every  enterprise  when  all 
is  experiment  and  outlay.  But  capital  is  always  ready  and 
able  to  meet  the  necessity.  It  belongs  to  capital  to  do  this ; 
for  it  gets  the  remuneration  of  it  when  the  yield  begins. 

There  is  a  remarkable  confirmation  of  the  truth  of  these 
remarks  in  the  history  of  the  boot  and  shoe  manufactures  of 
the  United  States.  They  never  asked  for  protection  ;  never 
received  any  notice  in  all  the  conflicts  for  increased  tariffs. 
The  trade  grew  up  naturally,  steadily,  and  profitably,  from 
the  first ;  increasing  gradually,  with  the  growth  of  the  coun- 
try, until,  at  the  present  time,  it  is  not  only  the  largest,  but 
one  of  the  most  profitable  branches  of  manufacturing  indus- 
try. In  Massachusetts  alone,  this  manufacture  extends  to 
over  fifty  millions  of  dollars  annually,  and  is  by  far  the  most 
advantageous  branch  of  industry  in  the  State. 

There  is  another  popular  argument  for  protection. 

2d,  It  is  claimed  that  we  ought  to  protect  our  labor  against 
the  pauper  labor  of  Europe. 

Does  a  restrictive  tariff  do  this?  Does  it  prevent  the 
laborers  of  Europe  from  entering  into  competition  with  ours  ? 
Does  it  not,  in  fact,  bring  them  to  our  very  doors  ? 

For  fifty  years  prior  to  the  date  of  the  first  important  tar- 
iff, viz.  181G,  there  was  no  immigration  of  any  consequence. 
Soon  after  this,  we  began  to  attract  skilled  workmen.  Some 
were  expressly  hired  to  come  over  to  teach  us  how  to  spin, 
weave,  <fec.  As  we  raised  the  tariff  and  increased  manu- 
factures, the  current  increased,  until  it  has  inundated  the 
country.     All  Europe  pours  in  its  starved  labor  upon  us. 

What  kind  of  labor  naturally  emigrates  ?  The  poorest, 
because  the  better  by  character  and  capacity  can  protect 
itself  longer  at  home.  An  employer  does  not  turn  his  good 
men  off  first. 

Why  so  large  a  proportion  of  Irish  ?  Because  theirs  is 
the  cheapest  labor  ;  the  first  thrown  out  in  any  reduction. 
The  tide,  once  turned  upon  us,  kept  swelling,  till  our  nation- 
ality is  almost  in  dispute.     This  immense  immigration  never 


CHAP.  IV.]    FALLACIES  OF  PEOTECTIVE  THEORY.        105 

came  here  in  obedience  to  natural  laws,  but  to  the  legisla- 
tion of  Congress.  Instead  of  protecting  American  labor 
against  the  pauper  labor  of  Europe,  we  have  brought  that 
labor  here  to  meet  the  American  citizen  face  to  face,  on  a 
perfect  level,  with  equal  civil  rights,  and  have  given  to  him 
the  advantage  of  our  immense  landed  capital.  Whether  this 
is  good  state  policy ;  whether  a  forced  immigration,  in  such 
vast  numbers  as  to  prevent  an  easy  and  natural  assimilation 
with  the  native  population,  is  desirable  or  not, — it  is  not  our 
province  to  discuss.  That  is  a  political  question.  It  only 
belongs  to  us  to  show  that  no  protection  has  been  given  to 
American  labor. 

3d,  It  has  been  gravely  said,  that  the  general  average  of 
all  profits  is  raised  by  a  protective  policy. 

If  true,  this  is  a  valuable  discovery.  It  affords  the  easiest 
known  method  of  making  everybody  rich  at  once,  and  with- 
out effort.  Government  has  only  to  place  sufficient  restric- 
tions on  trade  to  carry  up  profits  to  one  hundred  per  cent ; 
and,  when  all  trade  has  ceased,  everybody's  profits  will  be 
immense ! 

The  folly  of  such  assertions  is  too  apparent  to  justify  any 
considerable  notice. 

Where  are  the  enhanced  profits  to  come  from  ?  Out  of 
the  diminished  production  ?  Is  the  whole  lessened,  and 
every  part  increased  ?  So  far  as  protection  creates  a  mo- 
nopoly at  the  expense  of  the  public,  it  may,  for  a  while,  add 
to  the  profits  of  an  individual  or  a  class,  but  only  by  taxing 
other  industries  for  the  purpose. 

4th,  But  it  is  urged,  leaving  mere  argument,  do  we  not 
hioiv  that  protection  especially  develops  manufactures  ?  and 
are  not  manufacturing  countries  found  to  be,  in  fact,  richer 
than  those  which  are  more  exclusively  agricultural  ?  Both 
propositions  are  true  in  an  isolated  form. 

Other  things  equal,  in  a  normal  state  of  things,  manufac- 
turing communities  are  older  than  agricultural,  and,  of 
course,  have  much  greater  accumulated  wealth.     England 


106  EXCHANGE.  [BOOK   III. 

is  older  and  richer  than  the  United  States  ;  Massachusetts 
than  Ohio.  Manufactures  arise  because  a  people  have  a  dense 
population,  abundant  capital,  and  great  industrial  activity. 
Under  such  circumstances,  great  wealth  will  be  created,  be- 
cause these  arc  the  fit  conditions  of  creating  wealth.  Such 
creations  are  natural. 

It  is,  without  question,  true,  that  in  an  equal  manufac- 
turing population  will  be  found  a  greater  accumulation  of 
wealth.  One  important  reason  of  this  is,  that  a  larger 
share  of  the  population  are  engaged  in  production,  and  a 
larger  amount  of  capital  is  employed.  Women  and  chil- 
dren, who  could  earn  but  little  in  agricultural  labors,  can 
earn  much  in  manufacturing.  This  is  one  of  the  most 
striking  results  of  a  division  of  labor,  as  we  have  already 
shown.  As  we  carry  on  agriculture,  women  and  children 
do  little,  though  in  Continental  Europe  they  do  much. 
Agriculture,  too,  can  be  performed  only  in  certain  portions 
of  the  year.  Manufacturing  need  never  stop,  summer  or 
winter,  cold  or  hot,  fair  or  foul.  This  makes  a  wonderful 
difference. 

All  these,  however,  are  economical  advantages,  which 
manufacturing  communities  have,  when  properly  constituted 
and  employed.  These  are  reasons  which  may  induce  such 
industry  ;  never  reasons  why  it  should  be  compelled.  If, 
with  so  great  a  superiority,  manufactures  do  not  arise 
freely  and  support  themselves  fully,  it  becomes  a  double 
argument  for  not  forcing  them.  If  such  advantage  will  not 
secure  free  manufacturing,  it  is  certain  that  compulsory 
manufacturing  will  not  secure  these  advantages,  without 
the  sacrifice  of  other  interests. 

But  all  this  argument  in  favor  of  manufactures,  and 
these  anticipations  of  agricultural  glut,  come  out  of  a  false 
idea  of  what  are  the  natural  relations  of  these  two  great 
branches  of  labor.  Granted,  that  manufactures  are  a 
desirable  form  of  national  industry,  give  a  good  market  for 
the  produce  of  the  farm  and  the  mine,  and  help  build  up 


CHAP.  IV.]  FAILACIES   OF   PROTECTIVE   THEORY.  107 

the  common  wealth ;  yet  it  is  not  necessary  to  bring  them 
on  by  a  forcing  process,  for  they  come  of  themselves  as 
soon  as  profitable.  "We  have  already  shown  (page  86) 
that  certain  large  classes  of  manufactured  products  receive 
such  a  natural  or  local  protection  as  insures  their  home 
growth.  But  there  are  other  classes  which  have  an  encour- 
agement even  more  liberal.  There  is  a  principle  always 
operating  to  bring  manufactures  out,  on  every  part  of  the 
earth's  surface.  It  is  the  impossibility  of  carrying  on  cer- 
tain branches  anywhere  but  at  the  place  where  the  article 
is  wanted.  The  survey,  grading,  and  construction  of  rail- 
roads and  canals,  forming  as  they  do  an  immense  portion  of 
the  public  industry,  cannot  be  brought  within  the  purview 
of  the  custom-house.  They  are  necessarily  confined  to  the 
field  in  which  these  means  of  transport  are  to  be  used. 
These  may  stand  as  examples  of  a  vast  class  of  industry, 
which  arises  indifferently  to  protection.  So  all  tinkering, 
patching,  and  repairing,  great  or  small,  must  be  done  on 
the  spot.  A  glance  at  any  village,  no  matter  how  intimate 
its  connection  with  some  centre  of  trade,  will  show  how 
large  a  share  of  its  labor,  other  than  agricultural,  is  em- 
ployed in  its  local  work ;  so  that,  one  way  and  another, 
these  classes  of  manufacturing  interests,  which  inevitably 
come  to  the  community  without  help  of  law,  form  a  very 
considerable  part  of  the  whole. 

The  value  of  manufactured  articles  imported,  for  the  four 
years  preceding  the  war  of  the  Rebellion,  ranged  from  one 
hundred  and  fifty  to  two  hundred  millions  a  year ;  while 
the  authorities  of  the  treasury  and  of  the  census  esti- 
mate the  value  of  home  manufactures  at  not  less  than  one 
thousand  millions  a  year,  for  the  same  period.  Such 
comparisons  are  necessarily  crude ;  but  it  would  be  far 
within  bounds  to  say  that  four-fifths  of  all  the  present 
consumption  of  manufactures  would  be  supplied  by  our  na- 
tional industry,  irrespective  of  protection.  All  the  matter, 
then,  comes  to  this  :   Shall  we  impose  heavy  duties  to  force 


108  EXCHANGE.  [BOOK   III. 

labor  and  capital  into  such  channels  as  shall  provide,  at 
great  expense,  the  remaining  fifth  of  the  manufactures  we 
consume  ? 

5th,  Perhaps  the  most  popular  plea  of  all  for  protection 
looks  to  "  the  development  of  our  natural  resources."  This 
does  not  propose  to  increase  the  gross  or  net  product  of 
national  industry,  does  not  assume  or  assert  that  the  labor 
and  capital  of  the  country  are  not  well  employed  at  present ; 
but  it  remembers  the  great  mineral  and  metallic  wealth  we 
have  yet  hidden  in  the  Middle  States  and  the  West,  and  it 
sighs  for  the  thought  of  their  uselessness.  It  regards  as 
of  no  consequence  the  fact  that  digging  or  working  the 
ores  will  not  pay.  It  can  only  exclaim,  "  What  a  pity  that 
such  great  advantage  should  be  unimproved ! "  These 
reasoners  would  call  labor  off  from  the  rich  fields  of  agri- 
culture, from  no  other  motive  than  a  desire  to  see  our 
wonderful  mineral  treasures  developed. 

The  answer  to  this  species  of  patriotism  may  be  very 
short.  Since  Nature  has  taken  thousands  of  years  to  form 
these  ores  and  store  these  mines,  man  can  at  least  take 
time  enough  to  wait  till  it  will  pay  to  dig  them.  It  may 
seem  to  some  a  pity  they  should  remain  underground ;  but 
the  true  cause  of  the  misfortune  resides  in  the  fact  that  we 
have  not  population  enough  to  settle  densely  one-tenth  of 
our  territory.  It  is  a  misfortune  that  will  cure  itself  as  our 
numbers  increase.  We  can  certainly  afford  to  leave  for 
future  generations  what  we  cannot  afford  to  take  for  our- 
selves. 


CHAPTER  V. 

protection    (concluded). 

We  have  said  that  legal  protection  may  be  imposed  from 
one  or  more  of  four  general  reasons. 
We  have  discussed  the  first  two ;  viz., — 


CHAP.  V.]  PROTECTION.  109 

To  raise  a  revenue. 

To  encourage  the  growth  of  certain  commodities  at  home. 

We  now  come  to  the  remaining  reasons,  which  will  de- 
mand but  little  attention,  as  their  principles  have  already 
been  developed. 

To  support  existing  manufactures. 

Here  we  leave  the  expediency  of  founding  special  indus- 
tries by  a  system  of  protection,  and  confine  ourselves  to  the 
question,  whether,  such  industries  having  been  begun  and 
developed  under  high  tariffs,  capital  having  become  so 
engaged,  labor  having  become  so  employed,  it  is  not  neces- 
sary to  continue  the  protection. 

So  far  as  this  acknowledges  a  moral  obligation  on  the 
government  to  save  from  loss  those  who  have  followed 
the  guidance  of  its  laws,  it  is  a  question  for  the  statesman. 
But  the  economist  can  urge,  that,  if  the  burden  of  such 
bad  investments  must  be  borne  by  the  public,  it  would  be 
preferable  to  have  it  assumed  in  the  shape  of  direct  relief 
to  the  manufacturers,  rather  than  by  a  system  which  is 
sure  to  multiply  such  unfortunate  enterprises,  and  perpet- 
uate their  weakness.  That  great  caution  and  forbearance 
are  necessary,  in  removing  even  a  false  institution,  is  not  a 
maxim  which  economy  has  to  teach  politics. 

And  here  we  come  face  to  face  with  the  great  practical 
difficulty  of  protection  in  our  country  ;  that  which,  if  all 
its  principles  were  triumphantly  proved  in  general  reason- 
ing, should  still  throw  it  out  of  our  legislation.  If  it  were 
proved  harmless,  if  it  were  proved  beneficial,  there  is  a 
strong  reason  against  ever  attempting  to  realize  it  here. 
That  difficulty  resides  in  the  varying  politics  of  our  coun- 
try. Injurious  as  protection  is  to  the  best  interests  of  the 
country,  any  system  of  it,  however  severe,  would  be  prefer- 
able to  the  "  open-and-shut "  policy,  absolutely  unavoidable 
in  a  government  like  ours.  It  is  not  within  the  bounds  of 
reason  to  suppose  that  the  alternate  successes  of  parties 
will  not  continue  to  convulse  our  national  legislation ;  and 


110  EXCHANGE.  [BOOK   in. 

therefore  it  is  with  emphasis  true,  that  a  consistent  system 
of  protection  is  only  possible  in  a  government  with  great 
conservative  force  and  great  central  powers.  A  represent- 
ative body,  embracing  the  most  opposite  interests,  swayed 
by  such  influences  and  intrigues  as  notoriously  possess 
such  an  organization,  and  changed  in  all  its  parts  every 
few  years,  is  not  the  place  in  which  to  adjust  accurately 
and  dispassionately  the  economical  parts  of  a  nation,  and 
distribute  the  agencies  of  production. 

It  is  our  felicity,  that  our  well-being  does  not  depend  on 
such  counsels,  but  that  great  Nature  has  fixed  the  forces 
of  industry  in  perfect  harmony,  and  to  the  most  benefi- 
cent ends. 

To  secure  commercial  independence.  True  commercial 
independence  is  attained  by  any  nation,  when  its  natural 
resources  are  so  developed  and  cultivated  that  it  becomes 
a  power  in  the  world,  can  command  the  products  of  the 
industry  of  every  clime,  because  it  can  furnish  that  which 
all  others  want.  This  is  independence  in  commerce.  In- 
dependence of  commerce  is  the  independence  of  the  savage, 
or  of  undiscovered  countries.  To  assume  that  such  inde- 
pendence of  all  mutual  helpfulness  is  desirable,  outrages  the 
earliest  sense  of  humanity. 

But  it  is  claimed  that  such  a  separation  from  all  offices 
of  kindness  is  necessary  to  protect  nations  in  war. 

So  far  as  the  state  urges  the  claims  of  its  own  safety, 
the  principles  of  economic  science  must  be  silent.  But 
this  interference  with  the  laws  of  value,  for  the  preserva- 
tion of  the  national  life,  must  be  strictly  limited  to  the 
absolute  necessities  of  war. 

There  are  many  reasons  to  suppose,  that  this  interference 
is  rarely,  if  ever,  necessary.  There  arc  very  few  states 
which  could  not,  on  occasion,  supply  from  their  own  soil 
the  means  of  warfare.  It  would  be  much  better  that  nations 
should,  by  anticipation,  secure  from  abroad  a  sufficient 
amount  of  material,  than  by  indirect  efforts  distort  their 


CHAP.  V.]  PROTECTION.  Ill 

industry  to  an  extent  many  times  greater  than  would  be 
involved  in  obtaining  beforehand,  by  commerce,  whatever 
might  be  necessary. 

But  finally  and  decisively,  if  it  is  alleged,  under  any  cir- 
cumstances, to  be  essential  that  a  nation  should  possess 
within  itself  the  means  of  war,  we  answer  that  it  should 
undertake  the  manufacture  by  a  special  government  agency, 
not  by  changing  the  entire  industry  of  a  people  to  produce 
this  as  an  incidental  result.  Such  is,  in  fact,  the  procedure 
of  most,  if  not  all,  civilized  nations,  and  leaves  no  force 
in  the  plea  for  national  independence.  But  the  argument 
for  protection  from  the  necessities  of  war  has  almost  dis- 
appeared in  the  intenser  light  of  our  growing  civilization. 
The  independence  of  each  nation  in  commerce,  existing 
harmoniously  with  its  dependence  on  commerce,  forms 
the  best  hope  of  peace  and  tranquillity  for  the  future.  It 
may  be  safely  assumed,  that  the  probabilities  of  war  be- 
tween any  two  peoples  are  inversely  as  their  commercial 
relations.  The  great  reason  against  war,  in  the  present 
age,  is  not  the  expense  of  maintaining  armies,  nor  the  de- 
struction of  life,  but  the  interruption  of  trade.  This  not 
only  puts  peacemakers  in  the  councils  at  home,  but  makes 
all  nations  mediators  between  the  parties  at  variance. 

The  intercourse  between  the  United  States  and  Austria 
is  but  trifling.  A  little  fire  would  kindle  great  strife  be- 
tween these  two  peoples.  There  would  be  no  great  motive 
to  forbear  and  adjust  the  occasions  of  dispute.  The  United 
States  and  England,  on  the  other  hand,  have  a  yearly  trade 
of  four  hundred  and  fifty  millions  of  dollars,  which  inter- 
poses itself  between  the  nations,  however  angry,  a  great 
standing  policy  of  peace. 

All  general  economic  principles  urge  the  extinction  of 
war.  All  special  economical  interdependences  postpone 
and  weaken  the  provocations  of  war.  Resting  on  this  prin- 
ciple, we  shall  find  nothing  good  in  the  scheme  of  makjng 
nations  independent,  that  they  may  the  better  fight.     We 


112  EXCHANGE.  [BOOK   III. 

shall  recognize  commerce  as  the  great  bond  of  human 
brother]  lood. 

But,  after  all  argument  has  been  closed  on  the  principles 
of  protection,  we  still  find  one  plea  remaining.  If  freedom 
of  intercourse,  it  is  said,  were  only  universal,  it  would  be 
well ;  but,  since  it  is  not,  each  nation  must  protect  itself, 
and  do  as  it  is  done  by. 

Let  us  suppose  that  England  refuses  to  take  our  wheat. 
Would  that  be  a  good  reason  why  we  should  not  take  iron 
from  her,  if  we  get  it  so,  cheaper  than  by  making  it  ?  We 
have  already  shown  that  the  protected  suffers  more  than 
the  excluded  community.  If  England  should  exclude  our 
wheat,  whom  would  she  injure?  Ourselves  somewhat,  that 
is,  to  the  extent  of  the  profits  we  should  have  made  ;  her- 
self still  more,  that  is,  to  the  extent  of  the  vastly  enhanced 
cost  of  the  grain.  If,  in  retaliation,  we  exclude  her  iron, 
whom  do  we  injure  ?    Her  somewhat ;  ourselves  much  more. 

Let  us  examine  more  in  detail  the  consequences  of  our 
exclusion  from  foreign  ports.  If  partial,  we  could  still,  by 
selling  our  wheat,  get  iron  cheaper  than  by  making  it. 

If  total,  the  closing  of  our  markets  for  wheat  could  turn 
our  industry  towards  other  forms  of  production.  This 
would  constitute  one  of  the  conditions  under  which  manu- 
factures would  legitimately  arise ;  and  it  would  be  more 
sensible  and  healthful  than  if  it  came  as  the  result  of  our 
own  restrictive  legislation. 

The  full  consequences  of  the  policy  of  retaliation  would 
be,  each  people  refusing  to  receive  the  products  of  others, 
trade  annihilated,  industry  crippled,  all  nations  isolated, 
with  no  mutual  interest  but  robbery  and  plunder. 

We  have  said,  that  England,  by  imposing  a  duty,  say  of 
fifty  per  cent,  on  our  wheat,  would  injure  us  to  the  extent 
of  our  possible  profits,  and  herself  to  the  extent  of  the 
enhanced  cost  of  the  grain.  On  a  closer  inquiry,  we  shall 
see  that  the  injury  to  ourselves  is  compensated  in  part ;  that 
to  herself  is  aggravated. 


CHAP.  V.J  PROTECTION.  113 

The  consequence  of  such  a  duty  would  be,  that  the  con- 
sumption would  fall  off  in  some  degree.  Her  poor  would 
subsist  more  on  potatoes,  or  other  articles  cheaper  than 
flour.  But,  notwithstanding  these  shifts,  it  would  be  found 
that  it  cost  her  laboring  population  more  to  live,  even 
though  they  lived  more  meanly.  Their  wages  must  be 
raised :  this  is  certain.  All  taxes  laid  on  commodities 
which  the  laborer  must  use  have  the  effect  to  reduce  the 
quantity  or  quality  of  his  food  to  a  certain  point ;  but  he 
must  live,  and  his  wages  must  be  raised  to  enable  him  to 
do  so  with  the  enhanced  price  of  wheat.  This  would  make 
it  more  expensive  for  England  to  manufacture  her  goods, 
and  would,  in  part,  so  far  reduce  her  ability  to  compete  in 
the  markets  of  the  world.  By  such  a  policy,  she  would 
weaken  her  own  industry,  and  to  a  degree  exclude  herself 
from  commerce.  This  would  afford  another  condition 
under  which  manufactures  would  legitimately  arise  in  this 
country,  whose  wheat  was  excluded. 

That  this  is  no  impossible  supposition,  will  be  evidenced 
by  the  condition  of  England  before  the  repeal  of  the  corn 
laws.  The  movement  in  favor  of  that  great  measure  origi- 
nated in  Manchester,  and  was  carried,  against  the  nobility 
and  the  landed  interest,  by  the  resolute  efforts  of  the  manu- 
facturing class. 

What  advantage  is  there  in  refusing  to  buy  of  a  nation 
because  it  refuses  to  buy  of  us  ?  It  is  retaliation  and 
revenge,  not  self-defence  or  self-vindication.  The  first 
historical  instance  of  such  retaliatory  legislation  is  the 
establishment,  by  the  Venetians,  of  customs  duties,  to  de- 
prive foreigners  of  the  benefit  of  their  trade  ;  in  return  for 
which,  Charles  V.  imposed  twenty  per  cent  duty  on  all 
Venetian  merchandise.  The  most  wise  and  useful  econom- 
ical act  of  this  century  was  that  by  which,  by  the  exertions 
of  Mr.  Cobden,  England  and  France,  so  long  contending 
only  in  exclusions  and  mutual  injuries,  threw  open  their 
ports  to  the  free  entry  of  hundreds  of  articles,  to  the  com- 

8 


114  EXCHANGE.  [BOOK   in. 

mon  benefit  of  both,  and  to  the  advancement  of  good  feeling 
and  hearty  alliance  ;  a  measure,  that,  between  the  years 
1859  and  18(33,  increased  by  seventy-three  per  cent  the 
trade  of  Great  Britain  with  France,  while  proving  no  less 
beneficial  to  the  labor  of  the  latter  country. 

We  infer,  from  all  that  has  preceded,  that  "  protection  "  is 
an  unfortunate  expression.  To  restrict  industry,  to  put  the 
bad  on  the  level  of  the  good,  to  remove  from  industry  its 
only  guaranty  of  a  full  reward,  to  contract  trade  and  neu- 
tralize the  gifts  of  Nature,  is  not  protection,  in  any  proper 
sense  of  the  word.     It  is  spoliation. 

In  conclusion  of  the  subject,  it  may  be  proper  to  allude 
to  the  great  natural  characteristics  of -our  national  indus- 
try. We  see  that  the  important  fact  of  our  condition  is 
unequalled  agricultural  power.  Possessing  such  an  advan- 
tage, with  an  active,  enlightened,  and  enterprising  population, 
and  an  industry  perfectly  untrammelled,  we  should  naturally 
become  the  granary  of  the  world,  and  create,  as  a  certain 
consequence,  the  most  extensive  and  powerful  commercial 
and  naval  marine  on  the  globe.  We  should  secure,  by  sea 
and  land,  a  greater  power  to  give  help  to  friends,  or  hurt  to 
foes,  than  any  other  people,  and  should  rapidly  attain  our 
best  national  condition. 

We  should  have,  not  only  the  most  profitable,  but  the  most 
salutary  industry,  as  favorable  to  the  acquisition  of  unlim- 
ited wealth  as  to  a  sound  physical  development  and  high 
moral  culture.  We  should  have  manufactures,  also,  in  their 
spontaneous  growth.  They  would  arise  —  they  were  arising 
previous  to  any  tariff —  as  fast  as  the  best  interests  of  the 
country  required  them. 

States  and  sections,  like  New  England,  would  naturally 
and  profitably  undertake  manufactures,  because  they  have  a 
thinner  soil,  a  denser  population,  and  a  larger  capital  rela- 
tively, than  others.  Such  regions  would  be  the  workshops 
of  the  nation,  while  the  prairie^  of  the  West  and  the  rich 
uplands  of  the  Middle  States  would  be  the  nation's  farms. 


CHAP.  V.]  PEOTECTION.  115 

What  manufactures  arise  of  themselves  should  be  wel- 
comed, for  they  come  in  obedience  to  natural  laws  ;  they  are 
founded  on  extraordinary  facilities,  on  high  natural  protec- 
tion, on  local  necessities.  But  we  bind  the  swelling  thews 
of  the  youth  when  we  endeavor  to  force  on  America  the 
industry  of  Europe.  We  grow  enough  every  year  to  cover 
some  of  the  kingdoms  of  the  old  world.  Every  year's 
growth  stretches  over  and  appropriates  some  country,  fer- 
tile as  the  plains  of  the  Nile,  and  bearing  every  manner  of 
precious  or  useful  ore.  Here  is  our  destiny.  This  is  our 
wealth. 

It  cannot  be  too  often  repeated,  because  it  is  the  great 
fact  in  regard  to  manufactures,  that  they  only  need  to  be 
"  let  alone."  When  a  distinguished  French  minister  of 
finance  called  the  manufacturers  of  that  country  to  Paris, 
and  asked  what  he  could  do  for  them,  they  made  the  well- 
known  answer,  "  Laissez  nous  faire."  It  is  within  our 
personal  knowledge,  that,  when  the  proposal  was  made  to 
impose  the  protective  tariff  of  1816,  the  leading  manufac- 
tures of  Rhode  Island,  amongst  whom  was  the  late  Mr. 
Slater,  the  father  of  cotton-spinning  in  this  country,  met  at 
the  counting-room  of  one  of  their  number,  and,  after  delib- 
erate consultation  upon  the  matter,  came  unanimously  to 
the  conclusion,  that  they  had  "  rather  be  let  alone."  Their 
business  had  grown  up  naturally,  and  succeeded  well ;  and 
they  felt  confident  of  its  continued  prosperity,  if  uninter- 
fered  with  by  government.  On  the  other  hand,  they  argued, 
that,  by  laying  a  protective  tariff,  the  business  would  be 
thrown  out  of  its  natural  channels,  and  become  fluctuating 
and  uncertain.  How  well  founded  were  these  anticipations 
subsequent  events  have  fully  shown. 

It  will,  doubtless,  be  a  matter  of  profound  astonishment 
to  the  future  historian,  that  a  people  who  had  a  free  and 
untrammelled  industry,  with  natural  advantages  for  tho 
most  productive  agriculture  in  the  world  and  for  the  legiti- 
mate growth  of  every  kind  of  manufacture,  should   ever 


116  EXCHANGE.  [BOOK   III. 

have  asked  for  restrictions  upon  trade.  But,  in  truth,  they 
did  not  ask  for  protection  at  the  outset.  It  was  forced 
upon  them  by  politicians,  irrespective  of  their  wishes,  for 
the  avowed  purpose  of  securing  a  home  market  for  cotton. 

All  New  England  was  opposed  to  the  policy,  and  pro- 
tested against  it;  yet  it  was  carried.  Special  forms  of 
manufacturing  were  brought  into  existence ;  and,  as  these 
were  sickly  and  needed  all  the  help  they  could  obtain  from 
government,  an  interested  party  was  formed  which  clam- 
ored incessantly  for  protection.  Yet  it  was  not  until  the 
third  tariff,  that  of  1824,  had  gone  into  operation,  that  the 
Northern  and  Central  States  became  the  partisans  of  pro- 
tection. As  New  England  was  the  last  to  assent  to  restric- 
tive legislation,  so  she  will  undoubtedly  be  the  first  to  ask 
for  its  abandonment.  No  policy  could  be  more  adverse  to 
her  permanent  interests.  She  has  great  natural  advantages 
for  manufacturing.  With  these,  she  can  carry  them  on 
successfully.  By  high  protective  duties,  other  sections  of 
the  country,  not  having  the  same  natural  advantages,  will 
be  led  to  introduce  the  same  branches  of  industry,*  and  she 
will  find  her  severest  competition  at  home  ;  while  all  parts 
of  the  nation  will  be  crippled  by  a  false  system,  equally 
against  the  laws  of  nature  and  value ;  since  protection,  as 
previously  shown,  puts  the  bad  on  the  level  with  the  good, 
and  destroys  all  natural  tests  of  usefulness  in  production. 
It  should  always  be  borne  in  mind,  that  protective  duties 
must  be  high  enough  to  enable  the  home  manufacturer  to 
get,  at  least,  average  profits ;  that  is,  such  profits  as  com- 
modities in  general  afford.  He  will  not  make  broadcloth 
unless  it  is  as  profitable  as  any  other  branch  of  trade,  manu- 
facture, or  agriculture.  Nothing  short  of  this  is  protection ; 
and  the  duties  must  be  carried  upwards,  until  they  arrive 
at  that  point  in  which  those  who  are  manufacturing  to  the 
greatest  disadvantage  can  make  average  profits  ;  otherwise 
there  will  be  a  call  for  higher  duties.     This  is  one  of  the 

*  This  is  already  becoming  quite  apparent. 


CHAP.  VI.]  BALANCE   OF  TRADE.  117 

practical  difficulties  of  protection.  The  higher  the  duties 
imposed,  the  greater  will  be  the  rush  into  the  protected 
branch  of  industry  ;  and  none  will  be  satisfied  until  they 
make  the  business  profitable,  however  imperfectly  con- 
ducted. Hence  there  will  be  a  constant  call  for  increased 
duties.  Witness  the  history  of  protection  in  the  United 
States,  —  a  tariff  in  1816,  a  higher  one  in  1820,  higher  yet 
in  1824,  still  higher  in  1828,  with  continued  changes  from 
that  time  to  this. 


CHAPTER   VI. 

BALANCE    OP    TRADE. 

What  is  meant  by  the  balance  of  trade  ? 

An  actual  balance  of  trade  is  the  difference  between  the 
amount  of  values  exported  and  the  amount  of  values  import- 
ed. This  seems  a  very  simple  proposition  ;  yet  the  question 
is  one  of  great  complexity,  from  the  fact  that  it  is  difficult 
to  determine  with  certainty  whether  the  exports  of  a  nation 
do  or  do  not  actually  equal  the  imports.  Superficial  ob- 
servers resort  to  the  financial  returns  made  to  the  govern- 
ment ;  and  finding,  for  example,  that  the  imports  of  1854 
amounted  to  $304,562,381,  while  the  exports  were  but 
$278,241,064,  leaving  a  difference  of  $26,321,317,  they  has- 
tily conclude  that  the  balance  of  trade  was  against  this 
country  to  that  amount.  Such  a  conclusion  would  not 
have  a  sufficient  foundation. 

To  understand  this  subject,  we  must  notice  that  the 
exports  are  stated  at  their  value  at  our  own  custom-houses, 
while  the  amount  imported  is  stated  at  the  value  in  foreign 
countries.*  If  we  suppose  the  amount  exported  in  1854 
was  on  American  account,  and  paid  a  profit  of  only  nine 

*  Besides,  exports  are  estimated  at  currency  prices;  imports,  in  gold 
values,  —  a  very  wide  difference  under  a  depreciated  currency. 


118  EXCHANGE.  [BOOK  III. 

per  cent  on  the  custom-house  valuation,  we  shall  find  that  it 
will  amount  to  $25,  041,  695,  a  sum  very  near  the  assumed 
balance ;  and,  if  so,  the  commodities  exported  actually- 
paid  for  the  amount  imported,  and  the  supposed  unfavor- 
able balance  is  annihilated.  As  the  goods  exported  should 
sell  for  enough  abroad,  and  as  they  do  generally  sell  for 
enough  to  pay  all  charges  of  freight,  insurance,  <fec,  with 
reasonable  commissions,  say  in  all  fifteen  per  cent,  we  may 
justly  infer  that  there  was,  in  fact,  a  balance  in  favor  of  this 
country  in  1854.  But  the  question  whether  there  was  or 
was  not  an  actual  balance  that  year  can  only  be  determined 
by  ascertaining  whether  our  exports  generally  sold  for  an 
advance  sufficient  to  pay  for  the  imports.  This  is  known 
only  to  those  engaged  in  or  familiar  with  the  results  of 
the  export  trade  of  1854.  The  balance  might  have  been 
greater  or  less  than  what  it  appears  from  custom-house 
statistics. 

On  the  other  hand,  in  1855,  our  exports  exceeded  our 
imports  by  $13,688,326.  Does  that  show  a  balance  in  favor 
of  the  United  States  ?  Apparently  ;  yet  there  might  have 
been  a  loss  upon  our  exports  which  would  more  than  bal- 
ance the  $13,688,326. 

Although  the  financial  tables  of  the  Secretary  of  the 
Treasury  do  by  no  means  decide  the  balance  of  trade,  and 
the  custom-house  returns  are  never  conclusive  evidence, 
yet  there  are  cases  in  which  there  is  no  reasonable 
doubt  on  which  side  the  balance  is.  In  1836,  for  example, 
we  exported  one  hundred  and  twenty-eight  millions,  and 
imported  one  hundred  and  eighty-nine  millions ;  an  excess 
of  sixty-one  millions,  making  a  difference  of  sixty  per  cent 
over  exports.  In  this  case,  there  could  be  no  doubt  there 
was  a  larger  actual  balance  against  the  country,  because  the 
profits  could  not  have  been  equal  to  the  excess.  So  too,  to 
go  further  back,  in  1816,  the  exports  were  fifty-two  mil- 
lions ;  imports,  one  hundred  and  twelve  millions ;  excess, 
sixty  millions,  or  more  than  one  hundred  per  cent.     The 


CHAP.  VI.]  BALANCE  OF  TRADE.  119 

unfavorable  balance  in  both  cases  caused  great  distress  by 
the  necessary  exportation  of  specie. 

Balance  of  trade  how  adjusted. 

We  have  heretofore  said  that  an  unfavorable  balance 
must  be  liquidated  with  specie.  This  is  the  general  fact ; 
but  it  is  not  always  disposed  of  in  that  way.  For  example, 
the  balance  against  the  United  States  in  1853,  as  per  Finan- 
cial Report,  was  thirty-seven  millions.  Now,  if  this  were  in 
fact  an  actual  balance,  a  part  of  this  might  have  been 
extended  to  the  next  year,  and  paid  in  cotton  or  wheat ;  or, 
what  is  more  probable,  several  millions  of  railroad  or  other 
stocks  might  have  been  sent  abroad  and  sold,  and  the  bal- 
ance settled  from  the  proceeds. 

If  the  commerce  of  a  country  is  in  a  really  prosperous 
condition,  the  value  of  its  imports  will,  in  the  long-run, 
exceed  its  actual  exports,  because  its  export  trade  should 
pay  a  profit.  No  country  is  enriched  by  trade,  unless  its 
aggregate  imports  do  exceed  in  value  its  exports.  It  is 
no  matter  whether  the  excess  of  imports  over  exports  is 
brought  into  the  country  in  specie  or  any  other  desirable 
commodity,  provided  its  own  currency  be  a  true  standard 
of  value. 

The  trade  of  the  United  States  for  1863  showed  the  fol- 
lowing results:  Exports  (Financial  Report,  1864),  $>350,» 
152,125;  imports,  8252,187,587;  balance,  897,864,538. 
The  returns  also  showed  an  export  of  gold  to  the  amount 
of  $82,364,482,  an  import  of  gold  of  89,584,105,  giving  a 
balance  of  872,780,377.  A  considerable  part  of  this  gold 
was,  doubtless,  sent  abroad  for  safe  keeping  by  timid  capi- 
talists, and  not  over-loyal  citizens.  The  large  balance  of 
seventy-two  millions  in  favor  of  the  United  States  was  no 
indication  of  a  profitable  trade  that  year ;  quite  otherwise. 
The  balance  of  gold  exported  in  1864  was  ninety-one  mil- 
lions. Another  fact,  that  throws  additional  conjecture  upon 
the  apparent  balance  of  trade,  is,  that  false  invoices  are 
used  to  an  enormous  extent  at  our  American  custom-houses. 


120  EXCHANGE.  [BOOK   III. 

Whenever  duties  are  charged  upon  the  cost  of  the  com- 
modities, it  is  an  object  to  have  them  invoiced  as  low  as 
possible.  Fraudulent  invoices  are  often  made  out  abroad 
and  sworn  to  by  the  importers  here,  and  thus  the  actual 
value  or  amount  paid  for  the  foreign  merchandise  is  not 
accurately  exhibited.  The  Revenue  Commissioners  (see 
their  Report  to  the  Secretary  of  the  Treasury,  January  29, 
18(36,  page  45)  estimate  that  the  frauds  at  the  New- York 
Custom-House  alone  are  from  "  twelve  to  twenty-five  mil- 
lions annually."  The  aggregate  of  these  frauds  throughout 
the  country  has  been  estimated  as  high  as  forty  millions  per 
annum ;  but,  if  they  amount  to  only  thirty  millions,  the 
"  balance  of  trade  "  is  seriously  influenced  by  them. 

There  is  still  another  consideration  ;  viz.,  that  the  United 
States  are  much  indebted  abroad,  and  a  large  sum  is 
required  to  pay  the  annual  interest.  This  can  only  be  paid 
by  our  exports  of  merchandise  or  specie ;  for  both  are  alike 
reckoned  in  our  list  of  "  exports."  We  owed  8500,000,000 
abroad  in  1860  (see  Foreign  and  Domestic  Commerce,  1863, 
page  42,  Treasury  Report).  The  Comptroller  of  the  Cur- 
rency, in  his  Report  for  1865,  page  7,  estimates  the  amount 
of  our  securities  sent  abroad  the  last  jive  years  at  $713,000,- 
000,  — in  all,  then,  $1,213,000,000-  The  interest  on  this 
sum,  at  six  per  cent,  will  be  $72,780,000  ;  and  this  must  be 
provided  for  in  our  exports. 

Many  considerations  of  this  general  character  might  be 
brought  forward ;  but  sufficient  has  already  been  said,  we 
trust,  to  show  what  the  real  nature  of  a  balance  of  trade  is, 
and  how  difficult  a  matter  it  must  always  be  to  determine 
with  accuracy  upon  which  side  it  actually  is,  and  what  its 
amount. 


CHAP.  I.]         BARTER  AND  CURRENCY.  121 


PART   SECOND.— INSTRUMENTS  OF  EXCHANGE. 
CHAPTER  I. 

BARTER   AND   THE   DIFFERENT   FORMS   OF   CURRENCY. 

We  have  discussed  the  principles  upon  which  exchanges 
are  made.  We  now  come  to  consider  the  instruments  by 
which  they  are  effected. 

These  are  of  three  kinds :  — 

1st,  Barter. 

2d,  A  common  medium,  or  currency. 

3d,  Different  forms  of  credit. 

No  person  produces  every  thing  he  wishes  to  consume. 
Even  in  the  savage  state,  men  will  obtain  different  products, 
as  they  have  skill  and  opportunity.  These  they  will  ex- 
change among  themselves  in  kind. 

As  the  civilized  state  appears,  the  necessity  for  inter- 
change of  commodities  increases.  Every  mechanic  must 
exchange  his  products  with  every  other  mechanic,  and  all 
these  with  the  agriculturist  and  fisherman  ;  so  that  ex- 
change becomes  one  of  the  greatest  departments  of  human 
industry.  But,  under  these  circumstances,  barter,  or  ex- 
change in  kind,  becomes  a  very  inconvenient  and  clumsy 
mode  of  effecting  the  desired  object.  For  example,  the 
farmer  may  wish  to  exchange  wheat  for  a  hat ;  but  the  hat- 
ter is  already  supplied:  what,  then,  will  the  hatter  accept? 
A  table.  The  farmer  must  then  go  to  the  cabinet-maker,  and 
offer  his  wheat  for  a  table.  But  the  cabinet-maker  is  sup- 
plied with  wheat.  He  would,  however,  accept  a  pair  of 
boots.  The  farmer  applies  to  the  boot-maker,  who  happens 
to  wish  for  wheat  and  accepts  the  offer.  With  the  boots  the 
farmer  gets  the  table,  and  with  the  table  gets  the  hat  which 
he  desired. 


122  EXCHANGE.  [BOOK   III. 

Iii  such  a  state  of  things,  this  was  the  only  process  by 
which  exchanges  could  be  effected  ;  circuitous,  and  expen- 
sive in  time  and  labor,  as  it  was. 

We  might  have  supposed  a  far  more  difficult  case ;  but 
this  is  sufficient  to  illustrate  the  inconvenience  of  barter,  or 
the  direct  exchange  of  commodities.  But  there  is  still 
another  difficulty,  of  scarcely  less  magnitude.  When  arti- 
cles to  be  exchanged  became  numerous,  it  would  be  found  a 
very  intricate  matter  to  establish  satisfactorily  the  relative 
value  of  each.  For  example,  how  many  sheep  shall  be 
given  for  a  cow  ?  How  many  cows  for  a  horse  ?  How 
much  corn  for  a  bushel  of  wheat  ?  How  much  butter  for  a 
gallon  of  molasses  ?  How  many  eggs  for  a  pound  of  tea, 
sugar,  or  coffee  ?  How  many  of  any  or  all  of  these  for  a 
cart,  plough,  spade,  chair,  table,  &c,  through  an  intermina- 
ble series  of  exchanges  ? 

Under  such  circumstances,  there  could  be  no  such  thing 
as  price,  because  there  would  be  no  common  standard,  to 
which  the  value  of  all  articles  could  be  referred. 

What,  then,  was  wanted  ?  Evidently,  some  article  which 
all  persons,  either  by  common  consent  or  the  force  of  law, 
shall  accept  for  whatever  they  have  to  sell,  and  by  which 
they  will  measure  the  value  of  any  thing  sold.  , 

That  article  would  perform  two  important  functions  ;  viz., 
it  would  be  an  instrument  of  exchange,  and  a  standard  of 
value  :  in  other  words,  it  would  be  money. 

We  learn  the  true  nature  of  money,  then,  from  its  origin 
and  the  functions  it  performs.  These  offices  or  functions 
we  must  examine  in  detail. 

1st,  As  a  medium  of  exchange.  This  may  be  wholly  con- 
ventional. Any  thing,  which,  by  general  consent  or  in 
obedience  to  law,  all  receive  in  exchange,  will  answer  the 
purpose.  So  far  as  this  function  is  concerned,  it  is  of  no 
consequence  whether  the  article  has  value  or  not :  safety 
and  convenience  are  the  only  considerations  of  importance. 


CHAP.  I.]         BARTER  AND  CURRENCY.  123 

Money,  in  this  respect,  is  simply  a  counter,  token,  or  uni- 
versal equivalent. 

2d,  As  a  standard  of  value.  Value  is  not  conventional. 
It  attaches  to  all  objects  which  are  desired,  but  cannot  be 
had  without  effort  or  labor.  Since  the  value  of  any  thing 
is  its  power  in  exchange,  we  say  that  nothing  is  valu- 
able which  will  not  command  labor,  or  that  which  costs 
labor. 

6  Value  implies  comparison,  appropriation,  estimation,  measure. 
In  order  that  two  things  should  measure  each  other,  it  is  necessary 
that  they  be  commensurable ;  and,  in  order  to  that,  they  must  be  of 
the  same  kind."  —  Bastiat. 

Therefore,  if  we  would  measure  value,  we  must  use  an 
article  that  has  value  in  it.  The  measure  must  evidently 
have  the  same  quality  as  the  thing  to  be  measured, — 
weight  to  measure  weight,  length  to  measure  length,  vol- 
ume to  measure  volume,  value  to  measure  value. 

The  standard  must  be  as  nearly  invariable  as  possible. 
An  absolutely  invariable  standard  is  unattainable,  because 
the  standard  itself  must  be  subject  to  the  same  laws  as  the 
objects  to  be  measured ;  that  is,  cost  of  production,  supply 
and  demand,  &c. 

Hence  we  must  take  that  for  a  standard,  which,  on  the 
whole  and  in  the  long-run,  is  subject  to  the  least  fluctua- 
tion. Of  all  objects  of  this  kind,  we  shall  see  that  the 
precious  metals  are  the  least  liable  to  great  and  violent 
changes  in  value. 

In  examining  the  principle  of  barter,  we  were  forced,  by 
its  practical  difficulties,  to  accept  the  resource  of  a  universal 
equivalent  for  all  commodities.  This,  in  its  original  form, 
is  money.  But  the  course  of  civilized  industry  has  intro- 
duced several  forms  of  such  an  equivalent,  of  which  the 
money,  by  which  men  first  escaped  from  the  difficulties  of 
barter,  is  only  one.  All  these  forms  are  classed  as  cur- 
rency ;  and  therefore,  in  discussing  the  instruments  of 
exchange,  next  after  barter  we  come  to  the  subject  of — 


124  EXCHANGE.  [BOOK   III. 


CURRENCY. 

This  is  a  general  term  for  all  the  contrivances  by  which 
society  seeks  to  effect  a  general  exchange  of  values,  and 
discharge  pecuniary  obligations.  There  are  four  distinct 
kinds  or  species  of  currency,  each  differing  from  the  others 
in  important  particulars. 

1st,  The  first  of  these  instruments  is  called  money.  Any 
article,  which,  having  a  universally  recognized  value  in 
itself,  all  persons  accept  as  an  equivalent,  or  medium  of 
exchange,  and  which,  consequently,  becomes  the  standard 
by  which  all  other  values  are  measured  or  determined,  and 
in  which  all  pecuniary  obligations  are  expressed  and  dis- 
charged, is  money.  Being  composed  generally  of  the  pre- 
cious metals,  it  is  often  known  as  "  hard-money  currency," 
but  is  more  properly  a  value  currency.  Real  money  is 
simply  value  in  a  form  the  most  available  for  commanding 
all  other  values,  a  service  which  all  will  accept  for  any 
other  kind  of  service,  which  measures  all  other  services  or 
values  most  conveniently. 

2d,  The  second  kind  of  currency  consists  of  written  pro- 
mises, made  usually  by  governments,  to  pay  money  at  a 
distant  or  indefinite  period,  which  nevertheless,  by  force  of 
law  or  other  circumstances,  are  accepted  as  money,  and 
perform  its  general  functions.  The  notes  issued  by  the 
treasury  of  the  United  States,  and  familiarly  known  as 
"  greenbacks,"  now  (1865)  in  circulation,  are  of  this  de- 
scription. 

They  form  a  strictly  credit  currency,  but,  in  common  par 
lance,  are  called  paper  money. 

3d,  A  third  description  of  currency  is  formed  of  writ- 
ten promises  to  pay  specie  on  demand,  issued  in  excess 
of  the  actual  amount  of  specie,  or  money,  in  possession  of 
the  promisors  absolutely  held  for  the  redemption  thereof. 
These  notes  or  promises  are  generally  issued  by  corpora- 


CHAP.  I.]         BAKTER  AND  CURRENCY.  125 

tions,  called  banking  institutions,  and  circulate,  while  cur- 
rent, as  money,  performing  all  its  functions.     This  is  called 

a  MIXED  CURRENCY. 

4th,  A  fourth  kind  of  currency  consists  of  written  prom- 
ises, payable  on  demand,  issued  by  responsible  parties,  for 
the  payment  of  which,  in  full,  the  specie  is  actually  held  in 
trust  by  the  promisors.  As  such  a  currency  is  precisely 
adapted  to  all  the  wants  of  the  trading  and  business  classes, 
and  fully  combines  convenience  with  safety,  the  two  great 
desiderata,  it  is  with   great  propriety  called  a  mercantile 

CURRENCY. 

Of  the  four  kinds  of  currency,  it  will  be  observed,  that 
two,  the  first  and  fourth,  are  classed  as  value  currency ;  the 
second,  as  credit ;  the  third,  as  mixed,  consisting  of  value 
and  credit. 

The  following  is  a  brief  recapitulation  of  the  different 
kinds  of  currency  :  — 

I.  Money i.e.  .  Specie. 

II.  Credit  currency    .     .     .  i.e.  .  Promises  without  specie. 

III.  Mixed  currency    .     .     .  i.e.  .  Promises  with  part  specie. 

TV.  Mercantile  currency  .     .  i.e.  .  Promises  with  full  specie. 

After  this  statement  and  classification  of  the  different 
kinds  of  currency,  it  is  proposed  to  examine  each  in  detail, 
and  determine  their  several  characteristics,  and  also  the 
influence  of  each  upon  the  industrial  interests  and  general 
welfare  of  mankind. 

No  subject  is  more  involved  in  mystery  and  uncertainty 
in  the  popular  mind  than  that  of  currency.  This  arises, 
principally,  from  the  fact,  that  the  different  kinds  are  con- 
founded, and  the  whole  matter  thereby  rendered  incompre- 
hensible. The  general  use  of  mixed-currency  notes,  which, 
to  a  superficial  observer,  seem  to  possess  all  the  attributes 
of  money,  has  a  tendency  to  produce  this  result. 

To  obtain  a  clear  and  intelligent  view  of  the  subject,  it  is 
therefore  quite  necessary,  that  we  divest  it  of  all  its  usual 


126  EXCHANGE.  [BOOK   III. 

environments  and  associations,  and,  for  the  time  being,  even 
of  the  forms  and  terms  with  which  we  are  familiar,  and 
regard  the  question  as  abstractly  as  possible. 


CHAPTER  II. 

I.    MONEY. 

Having  examined  the  nature  and  functions  of  currency,  we 
shall  now  speak  of  the  actual  money  of  commerce,  or  the 
universally  accepted  equivalent. 

In  all  ages  and  countries,  this  has  consisted  of  the  pre- 
cious metals,  gold  and  silver,  with  the  baser  metals  or  alloys 
for  fractional  purposes. 

Local  currencies  have  been  various.  Lacedaemon  had 
iron  money.  The  Romans  are  supposed  by  many  to  have 
used  cattle  and  sheep  in  the  early  periods  of  their  history ; 
and  their  coins  bear  the  images  of  those  animals,  as  indi- 
cating their  value.* 

Tobacco  was  once  currency,  and  a  legal  tender,  in 
Tirginia. 

The  first  currency  legally  established  in  Massachusetts 
was  bullets.  The  "  General  Courte  ordered  [March  4, 
1635]  that  bulletts  of  a  full  boare  shall  passe  currently  for 
a  farthing  a  peice,  provided  that  noe  man  be  compelled 
to  take  above  12d  at  a  time."  Again,  it  was  enacted  "  that 
merchantable  beaver  shall  pass  at  Xs  the  pound."  In 
1637,  the  "  Courte  ordered  that  Wampumpege  should  pass 
at  six  for  a  penny,  for  all  sums  under  12V  In  1640  and 
1641,  additional  laws  were  enacted,  making  wampum  a  law- 
ful tender. 

Many  expedients  like  these  have,  at  different  times  and 
different  countries,  been  adopted  to  secure  a  temporary  and 
partial  currency ;  but  from  the  days  of  Abraham,  who  paid 
"  four  hundred  shekels,  current  money  with  the  merchants, 

*  Hence  called  pecunia,  money,  from  peciis,  a  flock. 


CHAP.  II.]  MONEY.  127 

for  the  field  of  Ephron,"  to  the  present  time,  the  money 
used  in  commerce  has  always  been  composed  of  gold  and 
silver.  These,  and  these  only,  have  formed  the  universal 
medium  of  exchange  and  standard  of  value. 

The  use  of  these  metals  arises  from  nothing  conventional. 
No  international  agreement  was  ever  made  respecting  them ; 
yet  they  are  everywhere  and  at  all  times,  without  hesita- 
tion, received  in  exchange  for  whatever  any  one  may  wish 
to  dispose  of.  They  secure  their  currency  simply  by  their 
peculiar  adaptedness  to  the  purpose. 

What  their  peculiarities  are  we  propose  now  to  consider. 

1st,  They  possess  value,  that  is,  have  poiver  in  exchange. 
They  cost  labor,  and  are  objects  of  desire.  They  cannot  be 
had  without  labor,  or  an  equivalent.  We  have  already  said 
that  the  article  used  as  a  standard  of  value  must  possess 
value  in  itself,  since  we  can  only  compare  value  with  value. 
Gold  and  silver  have  this  indispensable  requisite.  They  are 
subject  to  all  the  laws  of  value  as  truly  as  wheat  or  any 
other  commodity. 

2d,  These  metals  are  stable  in  value;  that  is,  the  most  so 
of  known  commodities.  They  are  subject  to  no  violent 
changes,  like  flour  or  cotton :  for  example,  wheat  often 
varies  from  twenty-five  to  fifty  per  cent  in  a  few  months. 
They  change  in  value,  indeed,  from  age  to  age ;  but  so  grad- 
ually is  this  accomplished  as  to  be  quite  imperceptible  at 
the  time.  , 

The  discovery  of  the  Western  Continent,  which  opened  to 
the  commercial  world  the  accumulated  treasures  of  Mexico 
and  South  America,  caused  the  greatest  change  known  to 
history;  yet  it  is  calculated,  that  from  1492  to  1650,  a 
period  of  one  hundred  and  fifty  years,  gold  and  silver  fell 
only  seventy-five  per  cent,  equivalent  to  half  of  one  per 
cent  per  annum ;  so  that  even  this  great  change  must  have 
been  so  gradual  as  to  have  inflicted  little  injury  on  individ- 
uals, and  could  only  have  been  appreciated  by  those  holding 
long  annuities  or  similar  securities. 


128  EXCHANGE.  [BOOK   III. 

3d,  They  are  conveniently  portable ;  the  most  so,  in  fact, 
of  all  commodities  existing  in  adequate  quantity.  One 
pound  weight  of  gold  will  ordinarily  command,  in  exchange, 
fifteen  thousand  pounds  of  wheat,  thirty  thousand  pounds 
of  Indian  corn,  five  tons  of  rice,  or  a  ton  and  a  half  of 
cotton. 

4th,  These  metals  are  malleable.  They  can  be  wrought 
into  any  shape,  will  receive  and  retain  any  impression,  may 
be  divided  into  the  minutest  quantities,  and  again  united, 
with  the  smallest  possible  loss.  Hence  they  are  admirably 
adapted  for  coinage,  or  a  great  variety  of  alternate  uses. 

5th,  They  are  of  uniform  quality.  Gold  and  silver  are 
always  and  everywhere  the  same.  Found  in  California, 
Australia,  or  Russia,  gold  is  everywhere  gold.  The  iron 
of  different  countries  varies  greatly.  The  copper  of  Siberia 
is  better  than  that  of  Germany,  while  that  of  Sweden  is 
better  than  that  of  Siberia,  and  that  of  Japan  surpasses  that 
of  Sweden.     It  is  not  so  with  the  precious  metals. 

6th,  They  may  be  readily  alloyed  or  refined.  By  alloy 
they  are  made  harder,  and  so  adapted  to  use  as  money. 
However  alloyed,  they  can  easily  be  restored  to  their  origi- 
nal purity  without  loss. 

7th,  They  are  indestructible  by  accident.  Fire  does  not 
consume  them ;  atmospheric  influences  cause  no  decompo- 
sition :  so  that  the  gold  and  silver  in  use  in  the  time  of 
the  Ptolemies  may  form  a  part  of  the  currency  of  the  world 
to-day. 

8th,  They  are  universally  appreciated.  The  precious  met- 
als are  regarded  as  beautiful  and  desirable  in  all  countries, 
and  among  all  races,  civilized  or  savage.  The  demand  for 
them  is  without  limit. 

9th,  They  are  generally  diffused.  These  metals  are 
found  in  every  principal  section  of  the  globe,  —  Europe, 
Asia,  Africa,  North  and  South  America,  and  Australia. 

10th,  They  are  sufficiently  plentiful.     Not  more  than  two 
thirds  of  the  gold  and  silver  now  in  the  possession  of  man 


CHAP.  II.]  MONEY.  129 

is  believed  to  be  used  as  money,  the  balance  being  in  plate 
or  other  objects  of  utility  and  ornament. 

11th,  They  are  nearly  inconsumable  by  use.  The  use  of 
almost  all  other  commodities  causes  their  rapid  destruction. 
Articles  used  as  food  or  clothing,  for  example,  disappear 
entirely  in  a  comparatively  short  period.  Even  iron,  as 
used  for  most  purposes,  —  in  railroads,  agriculture,  the  me- 
chanic arts,  &c,  —  lasts  only  a  few  years. 

With  gold  and  silver  it  is  quite  different,  though  the 
exemption  from  waste  is  more  remarkable  in  the  case  of 
gold.  Indeed,  its  ordinary  and  principal  use  can  scarcely 
be  called  consumption,  it  is  so  gradual. 

It  has  been  ascertained,  from  data  carefully  obtained  in 
the  Bank  of  England,  that  gold  in  coin  loses  only  4.16  per 
cent  in  one  hundred  years,  or  about  one  per  cent  in  twenty- 
five  years. 

The  following  comparison  exhibits  approximately  the 
great  difference  in  this  respect  between  gold  and  other 
commodities :  — 


Potatoes  consumed  within 


Wheat  „  „  say   .     .     . 

Cotton  „  „  average,  say 

Wool  „  „  „         „ 

.Lead  ,,  „  ,,         „ 

Iron  „  „  „         „ 

Gold  and  silver  in  coin  „         „ 


1  year. 


2  years. 

4  years. 

5  years. 
10  years. 
20  years. 

2400  years. 

Investigations  made  at  the  United  States  Mint,  as  by  Re- 
port of  1862,  showed  that  the  wear  and  tear  of  gold  and 
silver  used  as  coin  was  only  as  1  to  2,400 :  that  is,  it  costs 
but  one  dollar  to  keep  2,400  dollars  in  circulation.  Gold 
half-eagles  only  as  1  to  8,500  per  annum. 

When  used  for  gilding  and  similar  purposes,  it  is  much 
more  rapidly  consumed ;  but  the  amount  so  employed  is 
very  small,  in  comparison  with  the  whole  mass.  When 
used  in  plate,  the  consumption  is  even  less  than  in  coin ; 
and  a  larger  part  of  that  which  goes  into  jewelry  returns 

9 


130  EXCHANGE.  [BOOK   III. 

into  bullion  in  the  lapse  of  time.  So  that  we  must  esti- 
mate the  yearly  consumption  of  gold,  in  all  its  uses,  exceed- 
ingly small  as  compared  with  the  annual  production. 

COINAGE. 

Having  seen  how  admirably  adapted  the  precious  metals 
are  for  use  as  money,  we  pass  to  a  consideration  of  those 
artificial  arrangements  by  which  they  are  still  further  and 
more  completely  fitted  for  that  purpose. 

At  first,  these  metals  were  used  in  ingots  and  bars,  and 
passed  by  weight.  Whenever  a  pecuniary  transaction  was 
made,  scales  were  required  to  determine  the  quantity  given 
in  exchange. 

This  was  a  clumsy  and  imperfect  mode  of  payment ;  for 
there  would  arise  the  question  of  quality  as  well  as  quan- 
tity, —  of  the  pureness  or  fineness  of  the  metal.  This  could 
only  be  ascertained  by  assay  ;  and  that  could  be  accom- 
plished only  by  persons  having  the  necessary  knowledge  of 
metallurgy,  with  apparatus  for  conducting  the  process. 

It  was  therefore  natural,  that,  at  an  early  period,  a  con- 
trivance was  hit  upon  which  obviated  all  difficulties. 

The  bars,  or  ingots,  designed  for  money,  were  first  as- 
sayed, and  made  of  one  degree  of  fineness.  This  degree 
was  called  the  standard.  The  metal  thus  assayed  was  then 
divided  into  pieces,  and  the  weight  carefully  ascertained, 
and  stamped  upon  each.  These  pieces  were  called  coins ; 
the  process,  coinage. 

As  this  coinage  involved  great  responsibility,  it  very 
properly  became  the  duty  and  prerogative  of  the  govern- 
ment. Each  government  established  an  institution  for  the 
purpose,  called  a  mint.  To  these  mints  the  people  carried 
their  gold  and  silver,  and,  by  paying  a  very  trifling  seignior- 
age, had  the  whole  amount  returned  to  them  in  coin. 

In  the  United  States,  one- half  of  one  per  cent  is  now 
exacted ;  but  in  some  other  countries,  no  seigniorage  is 
charged,  the  whole  being  done  at  the  expense  of  the  govern- 


CHAP.   III.]  CREDIT   CURRENCY.  131 

ment.  The  policy  of  this  is  quite  doubtful.  Government 
should  retain  a  slight  compensation  for  two  reasons :  first, 
a  benefit  has  been  conferred,  for  which  the  recipient  should 
pay  a  fair  equivalent :  additional  value,  within  the  particu- 
lar country,  has  been  given  by  the  additional  labor ;  gold 
in  the  national  coin  being  more  useful  than  in  bars.  Sec- 
ond, because  coin  should  be  a  slight  fraction  less  valuable 
for  mechanical  purposes  and  for  export  than  bullion ;  other- 
wise it  will  be  wrought  up  into  jewelry  at  home  or  shipped 
abroad,  instead  of  bullion,  and  thus  an  unnecessary  waste 
in  coinage  will  be  the  consequence. 

Such  is  the  character  of  a  currency  composed  entirely  of 
money,  or  that  which  has  value  in  itself.  Of  all  subjects, 
this  is  one  of  the  most  simple,  most  free  from  all  complexity 
and  mystery.  No  one  can  fail  to  understand  it.  Govern- 
ment has  not  the  slightest  occasion  to  interfere  with  or 
regulate  it.  It  obeys  certain  natural  laws,  which  cannot  be 
improved  by  man.  All  that  government  can  usefully  do  is 
to  certify  to  the  weight  and  fineness  of  the  coinage.  It  has 
no  further  concern  with  money. 

The  main  point  to  be  borne  in  mind,  in  relation  to  coin- 
age, is,  that  government  does  not  determine  the  value  at 
all,  but  simply  certifies  to  the  weight  and  purity. 


CHAPTER  III. 

II.     CREDIT    CURRENCY. 

This  we  have  already  stated  to  consist  of  the  promises 
of  government  to  pay  money,  which,  by  force  of  law  or  the 
necessities  of  the  people,  are  received  as  money.  It  is 
simply  the  credit  of  the  nation,  used  as  currency.  The 
element  of  value  does  not  enter  into  it  at  all.  It  is  pre- 
cisely the  opposite  of  a  value  currency 


132  EXCHANGE.  [BOOK  III. 


ITS    CHARACTERISTICS. 

Such  a  currency  may  transfer  debts,  but  it  cannot  pay 
them.  The  creditor  may  accept  the  promises  of  the  govern- 
ment in  place  of  that  of  an  individual,  but  he  receives  no 
value.  So  far  as  issued  by  the  government  and  accepted 
for  taxes  and  other  public  dues,  such  notes  are  mere  coun- 
ters, used  for  cancelling  reciprocal  obligations.  If  such 
notes  are  issued  beyond  the  natural  volume  of  the  currency, 
they  can  never  be  kept  at  par  with  specie,  or  circulate  at 
their  nominal  value.  Gold,  as  compared  with  them,  will 
bear  a  premium,  the  amount  of  which  will  indicate  the 
excess  and  depreciation  of  the  currency,  and  the  want  of 
confidence  in  the  promisors. 

This  premium  is  the  result  of  the  operation  of  the  laws 
of  value  ;  and  no  legislation  of  free  government  or  edict  of 
despotism  can  permanently  change  it.  Governors  might  as 
well  prescribe  the  height  to  which  the  tides  of  ocean  shall 
rise,  as  to  restrict  or  reduce  the  premium  on  gold. 

Such  legislation  is  not  only  futile,  but  injurious,  pro- 
ducing an  effect  just  opposite  to  that  intended.  It  disturbs 
the  market  price  of  gold,  destroys  confidence  in  its  actual 
price,  and,  by  exciting  distrust,  drives  the  premium  far  up 
beyond  its  natural  limit. 

The  experiment  made  by  the  Congress  of  the  United 
States  in  1864  showed  most  conclusively  the  utter  folly  of 
attempting  to  interfere  with  the  laws  of  value.  After  the 
"  gold  bill,"  so  called,  became  a  law,  the  premium  rose  at 
once  some  fifty  per  cent  above  its  previous  rate.  The 
unwise  act  was  speedily  repealed,  and  the  excessive  pre- 
mium it  had  caused  fell  off. 

EFFECT   OF   CREDIT   CURRENCY   ON   PRICES   AND   INCOMES. 

A  general  rise  of  prices  follows  the  introduction  of  a 
credit  currency,  because  it  is  always  issued  in  excess  of 


CHAP.  III.]  CREDIT   CURRENCY.  133 

the  natural  volume  of  money ;  and  consequently,  as  prices 
must,  in  the  average,  conform  to  the  quantity  of  currency, 
they  will  advance  as  it  is  increased.  It  is  quite  idle  to 
attempt  to  evade  the  operation  of  this  law.  When  the 
Secretary  of  the  United  States  Treasury  endeavored  to 
"  float  "  his  bonds  by  the  issue  of  credit  currency,  he  unfor- 
tunately "  floated  "  all  the  merchandise  of  the  country  at 
the  same  time,  so  that  the  rise  of  prices  compelled  him  to 
pay  double  for  all  the  government  needed ;  and  hence  he  lost 
at  least  one-half  of  all  the  bonds  that  were  thus  sold. 

The  effect  on  fixed  incomes  is  very  marked.  From  what- 
ever source,  fixed  incomes  are  depreciated  in  value  just  in 
proportion  to  the  depreciation  of  the  currency.  But  there 
is  one  exception  in  the  practical  operation  of  this  principle. 
If  the  income  received  were  to  be  expended  entirely  for 
food,  clothing,  and  other  ordinary  articles  of  merchandise, 
the  full  depreciation  of  the  currency  would  be  felt.  But 
if,  as  would  usually  be  the  case,  a  portion  of  it  were  used 
for  the  payment  of  rent,  the  depreciation,  in  so  far,  would 
be  less  operative.  Neither  the  fee  nor  the  use  of  real 
estate  rises  in  proportion  to  other  things.* 

The  price  of  real  estate,  and  its  use,  would,  however, 
unquestionably  advance  to  nearly  the  same  extent  as  com- 
modities in  general,  provided  a  credit  currency  were  contin- 
ued as  the  currency  of  the  country  for  a  long  period,  say 
from  one  generation  to  another.  This,  however,  never  has, 
and,  in  the  nature  of  the  case,  is  not  likely  to  take  place ; 
credit  currency  being,  necessarily,  of  limited  duration. 

Doubtless,  investments  have  been  made,  especially  in 
large  cities,  that  would  not  have  been  made  but  for  the 
great  inflation  in  the  currency  of  the  United  States  during 
the  Rebellion ;  but  the  price  of  such  property  has  advanced 
slowly,  as  compared  with  flour,  clothing,  &c* 

*  That  real  estate  in  some  large  cities  has  much  advanced,  we  are  well 
aware ;  but,  take  the  whole  country  through,  it  is  doubtful  if  there  has  been 
an  advance  of  ten  per  cent.    Indeed,  none  is  visible  in  the  country  generally. 


134  EXCHANGE.  [BOOK   III. 

A  house  in  New  York,  worth  twenty  thousand  dollars  in 
1859,  was  not  worth  fifty  thousand  dollars  in  1804 ;  but 
twenty  thousand  dollars'  worth  of  flour,  at  prices  of  1859, 
would  have  brought  fifty  thousand  dollars  in  1804.  Why 
is  this  ?  Because  everybody  believes  that  prices  have  not 
permanently  advanced,  but  will  before  many  years,  perhaps 
before  many  months,  decline.  Therefore  permanent  invest- 
ments will  not  be  made  at  prices  corresponding  to  those  of 
ordinary  merchandise.  This  difference  between  real  estate 
and  consumable  commodities,  as  influenced  by  the  expan- 
sions and  contractions  of  the  currency,  should  be  borne  in 
mind,  as  it  will  explain  phenomena  that  will  be  presented  in 
our  further  inquiries. 

EFFECT    ON    CONTRACTS. 

A  credit  currency,  it  may  be  safely  assumed,  is  always 
redundant ;  and,  as  such,  its  effect  on  contracts  is  twofold. 
Obligations  to  pay  money  made  with  a  specie  standard,  and 
paid  with  credit  currency,  will  impose  a  loss  of  value  on  the 
creditor  equal  to  the  depreciation  of  the  currency.  Great 
injustice  and  suffering  resulted  from  this  cause  during  the 
progress  of  the  American  wars  of  the  Revolution  and  of 
the  Rebellion. 

On  the  other  hand,  contracts  made  to  pay  money  during 
the  existence  of  a  credit  currency,  but  which  mature  and 
are  discharged  under  a  value  currency,  will  subject  the 
debtor  to  the  loss  of  all  the  difference  in  the  value  of  the 
two  currencies.  Great  injustice  and  suffering  resulted  from 
this  source,  on  the  recognition  of  American  independence, 
in  the  last  century,  among  the  first  of  which  may  be  reck- 
oned the  Shay's  Rebellion  of  Massachusetts.  At  what  time, 
and  with  what  results,  the  return  to  specie  payments  at  the 
present  period  will  next  be  made,  it  is  yet  impossible  to 
predict. 

Historically,  it  is  found  to  be  true,  that  a  credit  currency 
has  never  yet  been  kept  within  the  natural  limit  of  the 


CHAP.  III.]  CREDIT   CURRENCY.  135 

value  currency  of  the  country  in  which  it  was  established. 
The  "continental  money"  of  the  American  Revolution;  the 
assignats  of  the  French  Revolution ;  the  bank  money  of 
England  during  the  Napoleonic  wars  ;  and,  lastly,  the  green- 
backs, or  treasury  notes,  issued  during  the  late  Rebellion, 
and  the  present  paper  currency  of  Russia,  are  illustrations 
in  point. 

The  French  assignats  were  issued  in  such  excess  that 
their  utter  repudiation  by  the  government  became  a  neces- 
sity. So  of  the  "  mandates "  which  followed  them.  The 
"  continental  money  "  became  entirely  worthless.  The  notes 
of  the  British  Bank,  which  depreciated  during  the  great 
struggle  with  France,  were  finally  restored  to  par  at  the 
cost  of  immense  suffering  and  loss  to  the  commercial  and 
business  classes. 

The  paper  issues  of  the  American  government  will, 
doubtless,  be  paid  ;  but  it  will  be  at  an  incalculable  amount 
of  bankruptcy  and  ruin  to  those  who  are  greatly  indebted. 

The  treasury  notes,  now  acting  as  currency,  will  be 
redeemed  ultimately ;  that  is,  be  taken  in  for  taxes  and  other 
dues  to  government,  and  thus  annihilated.  They  could  not 
be  paid  in  coin,  but  are  sufficiently  certain  to  be  cancelled 
in  the  way  just  indicated. 

A  credit  currency  never  has  been  regulated  in  such  a 
manner  as  to  keep  it  on  a  par  with  specie,  and  probably 
never  will  be.  The  necessities  of  government  are  so  press- 
ing that  the  temptation  to  increase  the  amount  becomes  too 
great  for  resistance.  As  prices  rise  in  consequence,  the 
currency  becomes  of  less  and  less  value,  that  is,  has  a 
decreasing  power  in  exchange,  so  that  the  inducement  to 
issue  becomes  continually  stronger  as  the  volume  expands. 
Unless  this  course  can  be  arrested,  final  bankruptcy  is 
sure. 

But  the  issue  of  a  legal-tender  credit  currency  is,  under 
any  circumstances,  a  great  wrong,  and  can  never  be  justi- 
fied except  in  the  most  extreme  cases  of  national  peril : 


130  EXCHANGE.  [BOOK  III. 

and,  even  in  those  instances  where  it  has  been  defended  as 
an  indispensable  measure,  events  have  generally  proved  it 
to  have  been  a  mistaken  and  short-sighted  policy. 

CREDIT    CURRENCY    A    FORCED    LOAN. 

When  a  government  issues  its  notes  as  currency,  and 
makes  them  a  legal  tender,  or  authorizes  other  parties  to  do 
so,  it  creates  a  forced  loan. 

All  creditors  are  compelled  to  receive  these  notes  for 
whatever  may  be  due  to  them,  which  is  equivalent  to  mak- 
ing a  loan  to  the  government  to  the  amount  so  received ; 
and  those  who  sell  their  property  are  obliged  to  take  these 
promises,  since  there  is  no  other  currency  in  use,  so  that 
the  whole  amount  thus  put  into  circulation  becomes  a  com- 
pulsory loan  to  the  government. 

CREDIT    CURRENCY    A    DIRECT    TAX. 

As  soon  as  legal-tender  credit  notes  begin  to  depreciate 
in  value,  or,  in  other  words,  as  soon  as  commodities  rise  in 
consequence,  each  person  who  receives  them  pays  a  tax 
equal  to  their  depreciation  while  in  his  possession.  For 
example,  if  he  receives  a  ten-dollar  note,  which  will  bring 
him  but  eight  dollars'  worth  of  merchandise  at  the  gold 
price,  he  has  contributed  two  dollars  to  the  government. 
So,  of  course,  with  all  who  receive  notes  in  payment  for 
debts  contracted  prior  to  the  issue  of  such  currency. 
When,  as  in  the  case  of  the  "  continental  money,"  these 
notes  become  utterly  worthless,  those  through  whose  hands 
they  have  passed  have  contributed,  at  least  nominally,  the 
whole  amount.  We  say  nominally ;  for  the  contribution 
thus  forced  from  the  people  is  not  in  fact  to  the  full  amount 
in  actual  value. 

For  illustration,  the  government  issues  one  hundred  mil- 
lions of  its  notes  at  first ;  and  for  this,  as  prices  have  not 
been  raised,  it  receives  an  equal  amount  in  value.  It  issues 
a  second  hundred  millions  ;  but  prices  have  advanced  in 


CHAP.  III.]  CREDIT   CURRENCY.  137 

consequence  of  the  first  issue,  we  will  suppose,  fifty  per  cent, 
so  that  the  government  gets  but  $66,666,666  in  value.  A 
third  issue  is  made  of  one  hundred  millions ;  but  prices  have 
gone  up  one  hundred  per  cent,  and  the  government  gets  but 
fifty  millions  in  value.  Another  issue  of  one  hundred  mil- 
lions carries  prices  up  to  one  hundred  and  fifty  per  cent, 
and  only  forty  millions  is  realized  in  value.  This  is  not 
intended  as  a  statement  of  the  precise  fact,  but  to  exhibit 
the  natural  operation  of  such  issues.  That  it  is  not  exag- 
gerated, appears  from  what  is  well  known,  that  the  United 
States  government  sold  many  millions  of  its  bonds  for  that 
which  was  equivalent  to  but  forty  per  cent  in  gold.  The 
result  is  shown  in  the  following  recapitulation :  — 

First  $100,000,000,  issued  at  par  value,   ....  $100,000,000 
Second  $100,000,000,  issued  at  33£  per  cent  dis- 
count   66,666,666 

Third  $100,000,000,  issued  at  50  per  cent  discount  50,000,000 
Fourth  $100,000,000,  issued  at  60  per  cent  dis- 
count   40,000,000 

Government  receives  in   value   for  $400,000,000 

issued $256,666,666 

Loss  to  the  government,  or  people 143,333,334 

$400,000,000 

The  people  must  finally  pay  in  taxes  $143,333,334  more 
than  the  government  received  in  value,  if  the  debt  is  paid ; 
but,  if  it  should  be  repudiated,  the  loss  of  actual  value  to 
the  people  would  be  but  $256,666,666,  the  balance  being 
merely  the  enhanced  prices  they  have  received  for  commod- 
ities furnished.  But,  unfortunately,  those  who  received  the 
extra  prices  and  those  who  will  lose  by  repudiation  may 
not  be  the  same  identical  persons. 

The  foregoing  illustration  shows  the  operation  or  general 
result  upon  the  community  of  a  credit  currency  as  a  direct 
tax  :  but  the  effects  upon  different  individuals  are  di versified 
in  every  possible  manner ;  one  man  losing,  another  gaining 
by  it,  according  to  the  position  in  which  the  parties  are 


138  EXCHANGE.  [BOOK   III. 

found  at  the  time  they  were  compelled  to  accept  such  a  cur- 
rency instead  of  money.  The  laws  of  value  having  been 
violated,  universal  chaos  in  all  monetary  affairs  is  the  inevi- 
table consequence. 

The  final  result  of  the  issue  of  an  inconvertible  currency, 
then,  is,  that,  if  it  is  never  redeemed,  the  taxation  it  imposes 
is  most  unequally  and  unjustly  distributed;  if  it  is  finally 
paid,  then  the  taxation  is  not  only  unfairly  distributed,  but 
the  amount  vastly  increased,  since  the  expenditures  of  the 
government  have  been  largely  enhanced  by  it.  It  does  not 
admit  of  question  that  a  large  part  of  the  debt  of  the 
United  States  represents  expenditures  made  solely  to  meet 
the  excessive  prices  caused  by  a  credit  currency,  especially 
in  the  years  1863-5,  when  the  premium  on  gold  averaged 
nearly  seventy  per  cent,  and  for  a  considerable  period, 
when  the  heaviest  expenditures  were  made,  as  high  as  one 
hundred  and  fifty.  Of  course,  the  taxation  of  the  country 
will  be  correspondingly  increased  for  the  payment  of  this 
excess. 


CHAPTER  IV. 

III.      MIXED    CURRENCY. 

Mixed  currency  is  a  modern  invention,  as  yet  known 
only  to  a  small  part  of  the  human  race,  and  but  partially 
understood  even  in  those  countries  into  which  it  has  been 
introduced. 

The  Bank  of  England,  the  parent  of  all  mixed-currency 
institutions  throughout  the  world,  was  established  in  1694 ; 
but  its  operations  were  so  limited,  and  its  influence  so  par- 
tially felt,  during  the  first  century  of  its  existence,  that  the 
character  of  the  currency  it  issued  was  hardly  appreciated. 
This  bank  made  a  grand  suspension  in  1796,  and  continued 
in  that  state  for  over  twenty-three  years.     This  was  the 


CHAP.  IV.]  MIXED   CURRENCY.  139 

first  occurrence*  which  demonstrated  practically  the  true 
nature  of  this  kind  of  currency. 

If  we  carefully  observe  the  composition  of  a  mixed  cur- 
rency, we  shall  find  it  to  consist  of  promissory  notes  issued 
by  individuals  or  corporations  legally  authorized  to  do  so,  in 
excess  of  the  actual  specie  held  for  their  redemption. 
These  notes  form  the  circulation  or  currency,  and  consist 
wholly  of  paper ;  yet,  as  they  profess  to  be  convertible,  they 
have  the  same  power  in  exchange  as  the  specie  itself,  so 
long  as  confidence  in  the  ability  and  integrity  of  the  promi- 
sors remains  unimpaired. 

This  is  rightfully  called  a  mixed  currency,  because  it  is,  in 
fact,  composed  in  part  of  value  and  in  part  of  credit.  So 
far  as  specie  is  held  for  the  payment  of  these  notes,  this 
kind  of  currency  is  actually  convertible,  and  equivalent  to 
money  ;  but,  in  so  far  as  the  credit  element  exceeds  the 
specie,  it  is  only  a  promise  to  pay  money,  and  is  inconverti- 
ble. A  mixed  currency,  therefore,  can  only  be  regarded  as 
partially  convertible ;  the  degree  of  its  convertibility  depend- 
ing upon  the  proportion  the  specie  bears  to  the  notes  issued 
and  the  deposits.  It  is  this  proportion  of  specie,  whatever 
it  may  be,  which  determines  the  quality  of  this  kind  of 
bank-note  circulation.  Its  quality  is  the  great  question  of 
interest  to  all  who  use  this  kind  of  currency ;  and  of  that 
we  propose  now  to  speak. 

THE    QUALITY    OP    A    MIXED    CURRENCY. 

This  is  by  far  the  most  important  matter  in  relation  to  a 
mixed  currency.  What  is  the  proportion  of  specie  held  for 
its  conversion  ?  To  ascertain  this,  we  must  know,  on  the 
one  hand,  the  amount  of  notes  in  circulation,  and  the  in- 
scribed credits,  that  is,  the  deposits  ;  and,  on  the  other,  the 
amount  of  specie  in  bank.  We  have  naught  to  do  with  any 
other  inquiry,  so  far  as  the  quality  of  the  currency  is  con- 

*  The  bank  suspended  for  two  years,  very  shortly  after  its  organization  ; 
but  its  capital  and  operations  were  then  too  limited  to  occasion  much  notice. 


140  EXCHANGE.  [BOOK   III. 

corned.  We  have  no  occasion  to  make  such  an  inquiry  in 
regard  to  money,  for  that  was  value  in  itself,  and  needs  no 
conversion  ;  nor  in  relation  to  a  purely  credit  currency,  for 
that  docs  not  profess  convertibility  :  but  a  mixed  currency, 
to  be  reliable  and  beneficial  to  the  public,  must  be  what  it 
proclaims  itself  to  be  ;  viz.,  convertible  on  demand  into  coin; 
and  therefore  a  sufficiency  of  coin  should  be  held  to  secure 
that  object. 

And  here  it  is  necessary  to  distinguish  carefully  between 
the  convertibility  and  the  redeemableness  of  a  currency. 
The  first  may  be  uncertain  or  impossible,  while  the  last 
may  be  sure.  A  bank  may  be  perfectly  solvent,  while  its 
currency  is  almost  entirely  inconvertible.  By  convertibility, 
then,  we  understand  the  power  of  the  bank  to  exchange 
its  promises  for  specie  on  demand ;  by  redeemableness,  its 
power  to  liquidate  or  discharge  its  obligations  some  time  or 
other,  by  the  resources  it  may  possess  for  ultimate  payment. 

For  example,  a  bank  has  promised  to  pay  one  hundred 
thousand  dollars  in  specie,  while  it  has  only  ten  thousand 
dollars  in  specie  to  pay  with.  The  same  bank  has  demands 
against  individuals,  for  their  notes  discounted,  to  the 
amount  of  two  hundred  thousand  dollars.  Now,  it  is  cer- 
tain that  this  bank  can  convert  only  ten  thousand  dollars  of 
its  bills  ;  but  it  can,  if  sufficient  time  is  allowed,  redeem  the 
whole  amount,  by  taking  in  its  own  notes  in  exchange  for 
those  of  its  debtors.  The  power  of  the  bank  ultimately  to 
redeem  or  cancel  its  notes  is  amply  sufficient ;  though,  for 
the  conversion  of  them  into  specie,  it  has  the  ability  only 
to  the  extent  of  one-tenth.  This  point  needs  to  be  well 
understood  and  remembered,  because,  as  we  shall  have 
occasion  to  show,  the  difference  between  the  redemption  and 
conversion  of  a  currency  is  a  matter  of  the  utmost  impor- 
tance to  the  business  world,  and  the  former  cannot  be  made 
a  sufficient  substitute  for  the  latter.  This  is  evident  from 
the  following  consideration. 

A  bank-note  converted  into  coin,  the  money  still  exists 


CHAP.  IV.]  MIXED   CURRENCY.  141 

in  circulation :  a  bank-note,  redeemed  by  receiving  it  for 
indebtedness  to  the  bank,  is  taken  out  of  circulation ;  that 
is,  it  ceases  to  be  currency,  and,  for  the  time  being,  is  prac- 
tically annihilated.  The  circulating  medium  of  the  country 
is  diminished  to  that  extent. 

To  illustrate  this  point,  and  show  how  much  depends 
upon  the  quality  or  convertibility  of  a  mixed  currency,  we 
propose  to  take  that  of  the  United  States  as  an  example. 

In  doing  this,  it  will  be  indispensable  that  we  refer  to  the 
statistics  of  banking  institutions,  and  use  the  terms  com- 
monly employed  by  them ;  and  therefore  we  now  proceed  to 
define  them. 

LIABILITIES   OP  A   MIXED-CURRENCY  BANK. 

1.  Capital  Stock.  —  This  is  the  sum  total  of  all  the 
amount  paid  into  the  bank,  to  constitute  its  means  of 
doing  business. 

2.  Circulation.  —  This  consists  of  notes  of  the  bank,  of 
different  denominations,  payable  on  demand,  signed  by  its 
officers,  and  issued  to  circulate  as  money. 

3.  Deposits. — These  include  all  sums,  from  whatever 
source,  that  stand  on  the  'books  of  the  banks  to  the  credit 
of  individuals.  They  are  properly  called  inscribed  credits : 
they  are  nothing  more  or  less.  They  are  all  legally  payable 
on  demand,  in  specie,  to  those  persons  in  whose  names  they 
stand. 

A  more  full  description  of  their  nature  and  effects  will 
be  given  hereafter. 

Bank  Balances.  —  "  Due  to  other  banks  "  and  "  due  from 
other  banks  "  are  terms  used  in  the  official  returns  made  to 
the  Treasury  Department  of  the  United  States. 

They  explain  themselves.  Banks,  like  individuals,  have 
open  accounts  with  each  other.  These,  in  the  aggregate, 
must  balance  each  other ;  but  there  is  often  a  considerable 
apparent  difference,  arising  from  the  fact  that  large  sums 
are  constantly  in  transitu. 


142  EXCHANGE.  [BOOK   m. 

As  affecting  the  character  of  a  mixed  currency,  these 
balances  are  an  important  item,  because  they  form  the  most 
explosive  and  dangerous  element.  They  are  "  deposits"  in 
their  nature,  certain  to  be  drawn  in  any  sudden  emergency. 
This  was  strikingly  illustrated  in  the  autumn  of  1857.  At 
that  time,  the  banks  in  the  city  of  New  York  owed  some 
sixty  millions  of  dollars  which  had  been  left  with  them  by 
distant  banks  in  order  to  meet  their  own  liabilities.  When 
the  pressure  came  on,  in  September  and  October  of  the  year 
mentioned,  these  banks  began,  of  necessity,  to  call  in  their 
balances. 

This  placed  the  New- York  banks  in  a  position  of  great 
difficulty.  To  answer  these  calls  would  require  a  large  part 
of  all  their  means ;  while,  at  the  same  moment,  the  mer- 
chants and  business  men  of  the  city  needed  all  the  resources 
they  could  command.  But  the  banks  must  meet  the  drafts 
made  for  their  balances,  or  suspend  at  once ;  and,  accord- 
ingly, were  compelled  to  cut  off  all  discounts,  or  loans,  to  their 
regular  customers.  This  state  of  things  could  not  be  long 
endured ;  and  the  merchants  of  the  city,  being  soon  driven 
to  desperation,  began  to  draw  upon  their  own  deposits  for 
specie ;  and  thus  a  general  suspension  took  place,  not  only 
in  the  commercial  metropolis,  but  through  the  country. 

These  balances,  as  they  exist  extensively  in  all  great 
cities,  form  the  train  that  ignites  the  magazine,  and  causes 
an  instant  and  general  explosion. 

The  Bank  of  England  was  compelled,  in  1847,  to  obtain  a 
suspension  of  the  act  of  1844,  by  the  threat  of  the  banking 
houses  to  withdraw  their  balances,  and  again  in  1857. 

Other  Liabilities.  —  These  consist  of  various  obligations, 
which  banks  incur  in  the  course  of  their  transactions  with 
the  public  and  each  other.  They  are  not  large  in  the 
aggregate,  as  compared  with  their  aggregate  liabilities,  but 
must  be  taken  into  the  account.  They  may  be  immediate 
or  remote  liabilities,  but  are  mostly  immediate. 


CHAP.  IV.]  MIXED   CURRENCY.  143 


RESOURCES   OF   A   MIXED-CURRENCY  BANK. 

Loans.  —  This  item  includes  the  sum  total  due  the  bank 
from  its  customers  for  discount  and  advances,  and  for 
which  the  banks  hold  notes  or  other  obligations,  payable  at 
some  future  time ;  say,  from  one  day  to  four  or  six  months, 
as  the  case  may  be. 

Stocks.  —  Banks  are  large  purchasers  of  the  various  State 
and  national  stocks,  and  also  those  of  towns,  cities,  rail- 
road companies,  &c.  The  whole  amount  so  held  is  included 
in  the  term  "  stocks." 

Real  Estate.  —  A  place  of  business  being  indispensable  to 
the  operations  of  banking,  buildings  are  erected  for  such 
purposes.  These,  being  often  beyond  the  needs  of  the  bank, 
are  rented  in  part. 

Oilier  Investments.  —  A  general  term  that  includes  all 
kinds  of  property  the  bank  may  hold,  from  necessity  or 
choice,  not  embraced  in  any  preceding  title. 

Notes  of  other  Banks.  —  As  banks,  in  the  course  of  busi- 
ness, are  constantly  receiving  each  other's  notes,  they  must 
necessarily  have,  in  the  aggregate,  a  large  amount,  which 
appear  among  their  assets.  Notes  thus  held  in  no  essen- 
tial particular  affect  the  general  character  of  the  currency : 
they  only  concern  the  relations  of  the  banks  to  each  other. 
In  their  nature,  they  do  not  differ  from  other  notes  in  circu- 
lation :  they  are  held  by  corporations,  instead  of  individuals. 
They  would  not  assist  a  bank  in  meeting  immediate  de- 
mands, as  they  are  not  legal  tender. 

Cash  Items.  —  Many  banks  have  the  practice  of  reckoning 
certain  assets  they  hold  as  equivalent  to  cash,  and  class 
them  as  "  cash  items  "  in  their  returns.  For  example,  a 
bank  may  hold  a  check  upon  another  bank  for  a  given  sum, 
which,  in  its  account  with  that  bank,  and  for  many  other 
purposes,  may  be  equally  available  for  the  time  being,  with 
money  actually  in  hand.     Checks  drawn  by  individuals  on 


144  EXCHANGE.  [BOOK    III. 

other  banks,  foreign  exchange,  sight  drafts,  and  the  like, 
are  often  reckoned  among  these  items.  But,  whatever  their 
origin  or  character,  they  add  in  no  degree  to  the  strength 
of  the  currency.  They  may  help  the  individual  hank  that 
holds  them,  as  compared  with  the  debtor  banks,  but  not  the 
general  mass. 

Reserved  Profits.  —  Although  no  such  item  appears  in  the 
returns  published  by  the  national  government,  it  is  one  of 
some  importance.  In  most  banks,  it  is  customary  to  reserve 
a  certain  sum  from  the  profits  of  each  year,  to  ensure  against 
unexpected  losses  or  contingencies.  In  some  cases,  this 
reserve  is  large ;  in  others,  small.  In  Massachusetts,  in 
1863,  the  amount  so  reserved  was  nearly  five  millions,  equal 
to  eight  per  cent  on  the  capital.  This,  while  it  does  not  in 
any  way  change  the  character  of  the  currency,  gives  the 
bank  greater  ability  to  make  loans.  It  is,  for  the  time 
being,  an  increase  of  banking  capital.  It  adds  nothing  to 
the  convertibility  of  current  notes. 

With  this  explanation  of  the  terms  employed,  we  proceed 
to  give  such  statistics  of  the  banks  of  the  United  States  as 
shall  exhibit  the  character  of  the  currency  they  issue. 

The  first  point  to  be  noticed  is  the  aggregate  capital  of 
these  banks,  which  we  find  to  be  $421,880,095,  on  the  1st 
of  January,  1860.  We  have  selected  that  point  of  time,  be- 
cause the  country  was  then  undisturbed,  and  the  currency 
in  its  natural  condition.  This  capital,  as  we  have  already 
explained,  is  the  amount  which  the  banks  have  at  their  com- 
mand, and  which  it  is  their  business  to  loan  out  to  the  pub- 
lic ;  and,  let  it  be  recollected,  this  is  all  which  they  can  loan, 
except  their  own  credit,  issued  in  the  form  of  bank-notes, 
or  inscribed  in  their  books  as  "  deposits,"  in  exchange  for 
the  notes  of  individuals  or  business  firms  and  corporations. 

The  next  point  to  be  noticed  is  the  aggregate  of  all  the 
assets  or  property  of  these  banks  ;  and  by  ascertaining  this, 
and  subtracting  therefrom  the  capital,  as  before  stated,  we 
shall  find  to  what  extent  the  banks  have  loaned  their  credit, 


CHAP.  IV.]  MIXED   CURRENCY.  145 

and,  of  course,  to  what  extent  credit  enters  into  the  cur- 
rency. The  statistics  which  show  this,  present  the  following 
result :  — 

The  entire  property  in  possession  of  the  banks,  at 

this  time,  was $887,789,762 

From  which  deduct  the  aggregate  capital       .     .     .       421,880,095 

Total  credit  issued  by  the  banks $465,909,667 

On  this  amount  the  banks  were  receiving  interest,  or  in- 
come beyond  that  received  for  their  actual  capital. 
This  "  total  credit "  issued  by  the  banks  was  — 

Its  circulation $207,102,447 

Deposits 253,802,129 

Total  currency $460,904,576 

It  will  be  observed,  that  the  "total  credit"  does  not  ex- 
actly correspond  with  the  "  total  currency."  This  may  be 
accounted  for  by  the  consideration  that  the  item  of  "  reserved 
profits,"  though  given  in  the  returns  of  some  of  the  State 
banks,  are  not  noticed  in  the  returns  made  to  the  general 
government ;  so  that,  as  those  "  profits  "  increase  the  actual 
capital  of  the  banks,  some  unimportant  discrepancies  may 
be  found  in  the  accounts. 

This  remarkable  difference,  then,  between  the  capital  of 
the  banks  and  their  property  in  possession,  is  the  first  thing 
to  be  noticed  in  regard  to  the  mixed-currency  system,  be- 
cause it  shows  how  it  is  that  large  profits  may  be  made  upon 
mixed-currency  banking.  Interest  is  obtained  upon  twice 
the  amount  of  actual  capital.  This  income,  however,  is 
not  uniformly  distributed  among  the  banks  acting  under  the 
system.     Some  obtain  more ;  others,  less. 

We  also  see  why  it  is  that  such  banks  must  be  constantly 
desirous  of  increasing  their  loans,  by  issuing  their  own  credit 
in  the  shape  of  circulation  and  deposits.  The  more  they 
can  get  out,  the  larger  the  income.  This  is  the  motive  power 
that  ensures  the  constant  expansion  of  a  mixed  currency  to 

10 


146  EXCHANGE.  [BOOK   in. 

its  highest  possible  limit.  The  banks  will  always  increase 
their  indebtedness  when  they  can,  and  only  contract  it  when 
they  must. 

These  facts  show,  too,  why  a  mixed  currency  exists  at 
all;  viz.,  because  those  who  create  it  make  a  profit  both  on 
their  capital  and  credit,  and  as  much  on  the  latter  as  the 
former. 

But  still  another  view  of  the  currency  is  necessary,  to 
show  the  preponderance  of  the  credit  over  the  value  element 
in  the  actual  currency  :  — 

1860.  Circulation,  as  before $207,102,477 

Deposits 253,802,129 

Whole  currency $460,904,606 

Specie,  or  value 83,594,537 

Pure  credit $377,310,069 

This  will  give  eighteen  cents  and  one  mill  on  the  dollar 
as  the  value  element,  and  eighty-one  cents  and  nine  mills  as 
the  credit  element,  in  the  entire  currency ;  credit  being  to 
value  as  more  than  five  to  one. 

But  yet  another  view  of  the  system  is  necessary,  if  we 
would  understand  the  true  position  of  the  banks  in  relation 
to  each  other,  in  case  of  an  actual  demand  for  specie,  occa- 
sioned by  want  of  confidence  or  demand  for  exportation. 

Immediate  liabilities  of  the  banks  of  the  United  States, 
I860:  — 

Circulation $207,102,477 

Deposits 253,802,129 

Due  other  banks 55,932,918 

Other  liabilities 14,661,815^^^ 

Immediate  resources :  — 

Specie $83,594,537 

Cash  items 19,331,521 

Notes  of  other  banks 25,502,567 

Due  by  other  banks 67,235,457   .Q-RRA  nQt> 

x-.  /.  •  ».        ,...,..  .        —r. 195,664,082 

iixcess  of  immediate  liabilities  over  immediate  re- 
sources      $335,735,257 


CHAP.  IV.]  MIXED    CURRENCY.  147 

From  this  statement  we  perceive  the  real  position  of  the 
banks  in  regard  to  the  convertibility  of  their  currency.  They 
owed  on  demand  $335,735,257,  which  they  had  no  imme- 
diate means  in  their  possession  to  meet ;  but  they  held  the 
following  assets,  or  ultimate  resources :  — 

Loans $691,945,580 

Stocks 70,344,343 

Real  estate 30,782,131 

Other  investments     .     • 11,123,171 

Total $804,195,225 

After  deducting  the  excess  of  immediate  liabilities, 

as  above 335,735,257 

Surplus $468,459,968 

This  would  seem  a  sufficiently  large  margin  to  guarantee 
the  ultimate  redemption  of  the  bank  currency  ;  but  does  it 
secure  its  immediate  convertibility  ?  That  is  the  point ; 
and  the  answer  must  depend  upon  the  question,  whether 
the  banks  can  realize  from  their  assets  (loans  mainly)  as 
fast  as  the  redemption  of  their  deposits  and  notes  may  be 
called  for.  If  not,  they  must  suspend.  Their  loans  are  on 
time,  from  one  day  to  six  months  ahead,  and  therefore  may 
not  be  actually  due,  so  fast  as  the  necessities  of  the  banks 
may  require ;  but,  even  if  they  should  mature  fast  enough, 
the  practical  question  would  still  arise,  whether,  if  the  banks 
take  in  their  notes  and  refuse  to  put  them  out  again,  and 
decline  to  make  their  usual  loans,  as  in  the  emergency  of  a 
large  demand  for  specie  they  certainly  must,  how  will  it  be 
possible  for  the  debtors  of  the  banks  to  meet  their  pay- 
ments ?  If  the  banks  could  stop  their  loans  just  when  they 
pleased,  they  might  perhaps  save  themselves  from  dishonor : 
but  they  cannot  do  this,  because,  unless  they  continue  to 
make  discounts,  their  customers  will  certainly  fail,  since 
they  rely  upon  discounts  to  meet  their  obligations  as  they 
become  due. 


148  EXCHANGE.  [BOOK   UI 

CHAPTER  V. 

ANALYSIS    OP    DEPOSITS. 

Our  analysis  of  mixed  currency  will  be  far  from  complete, 
if  we  do  not  give  a  full  description  of  the  origin  and  charac- 
ter of  deposits,  as  forming  an  element  most  dangerous  to  such 
a  currency,  and  generally  very  mysterious  in  the  popular 
understanding. 

In  the  currency  of  the  United  States,  deposits  constitute 
the  largest  item,  considerably  exceeding  the  circulation. 

The  nature  of  these  deposits  has,  until  within  a  very  few 
years,  been  a  matter  of  serious  disagreement  amongst  those 
who  ought  to  be  well  acquainted  with  their  nature  and 
effects.  To  present  the  subject  in  such  a  light  that  it  shall 
be  clearly  understood,  we  must  carefully  examine  it  in  all  its 
details. 

First,  What  are  deposits  ?  We  have  already  defined 
them  as  credits  given  to  individuals  in  the  books  of  the 
banks,  for  which  they  are  authorized  by  law  to  demand 
the  specie.    They  indicate  what  the  banks  owe  on  account. 

Secondly,  How  do  they  arise  ?     In  various  ways. 

1.  A  customer  may  deposit  coin,  and  have  the  amount 
passed  to  his  credit.  The  proportion  thus  deposited  is  infi- 
nitesimally  small,  compared  with  the  aggregate  deposits. 

2.  He  may  deposit  checks,  drawn  by  himself  or  others, 
on  other  banks. 

3.  He  may  deposit  the  notes  of  the  same  or  other  banks. 

4.  He  may  deposit  the  notes  of  individuals,  or  bills  of 
exchange  running  to  maturity ;  and,  when  they  are  collected, 
the  amount  will  be  passed  to  his  credit. 

o.  The  customer  may  get  his  own  notes,  or  the  notes  of 
others,  discounted  at  the  bank,  and  the  amount  is  passed  to 
his  credit ;  and  this  last  is  the  origin  of  the  greater  part  of 
all  deposits. 


CHAP.  V.]  MIXED  CURRENCY.  149 

Of  these  different  kinds  of  deposits,  it  will  be  observed 
that  only  one,  and  that  a  small  one,  was  in  specie ;  and  yet 
the  bank  has  promised  to  pay  specie  on  demand  alike  for 
all.  But  it  must  be  observed,  that,  while  all  these  stand 
legally  on  the  same  basis,  as  a  matter  of  fact  they  are 
practically  held  by  the  banks  upon  different  conditions, 
expressed  or  implied.  They  may  be  divided  into  three 
kinds :  — 

First,  Permanent  or  compulsory  deposits,  made  by  busi- 
ness men  wishing  for  bank  accommodations,  in  order  to 
secure  larger  loans. 

Second,  Fiduciary  or  trust  deposits,  made  wholly  for 
temporary  safe  keeping,  by  executors,  guardians,  treasu- 
rers of  corporations,  &c,  who  are  receiving  funds  to  be  paid 
out,  or  invested  at  a  future  period. 

Third,  Active  deposits,  made  by  business  men,  to  be 
withdrawn  to  meet  their  current  payments. 

It  will  be  necessary  to  explain  these  different  deposits. 

The  permanent  or  compulsory  deposits  are  not  used  at 
all  by  those  who  make  them.  They  are  made  with  the  tacit 
understanding  that  they  are  to  remain  in  the  bank,  and  not 
be  drawn  upon.  They  are  made  to  secure  favors  from  the 
bank,  and  in  order  to  show  a  "  good  account."  No  bank, 
perhaps,  compels  its  customers,  by  any  law  or  rule,  to  do 
this ;  but  custom  in  such  a  case  is  as  imperative  as  law. 
Banks  are  conducted  wholly  with  reference  to  profit,  and 
the  most  profitable  accounts  will  secure  the  most  liberal 
discounts. 

These  deposits  constitute  a  permanent  loan  to  the  banks, 
without  interest ;  and  the  banks  can  loan  the  same  to  their 
customers  upon  interest.  It  is  one  of  the  forms  in  which  a 
bank  may  secure  extra  interest  in  a  legal  way ;  but  it  is 
done  at  the  expense  of  those  who  make  the  deposits. 

This  kind  of  deposits  forms  a  very  dangerous  element  in 
the  mixed-currency  system,  for  the  reason,  that,  when  the 
merchants  of  any  great  city  are  driven  to  desperation,  they 


150  EXCHANGE.  [BOOK   III. 

may  demand  these  deposits  in  specie,  and  then  the  banks 
must  suspend.  This  was  done  in  New  York  in  October, 
1857,  as  before  stated.  The  merchants  saw  clearly,  that, 
unless  the  banks  would  make  discounts,  they  could  not 
meet  their  engagements.  The  banks  refused  to  do  this, 
because  they  could  not,  and  continue  to  pay  specie.  The 
merchants  then,  by  concerted  action,  called  for  their  depos- 
its ;    and  the  banks  themselves  succumbed. 

This  will  always  be  re-enacted  in  a  time  of  great  pressure, 
if  the  mixed-currency  system  is  continued.  It  is  the  only 
remedy  which  the  mercantile  interest  has  within  its  power. 
It  is  properly  used,  because  the  banks  have  no  right  to  make 
promises  which  they  know  perfectly  well  they  cannot  keep. 

Another  objectionable  consideration  is,  that  these  deposits 
greatly  and  unnecessarily  enlarge  the  immediate  liabilities 
of  the  banks,  and  give  them  a  frightful  preponderance  over 
the  immediate  means  of  payment.  This  injures  the  credit 
of  the  banks  in  times  of  pressure.  All  sagacious  financiers 
look  with  suspicion  on  institutions  owing  ten  or  fifteen  dol- 
lars on  demand  for  every  dollar  they  have  in  their  posses- 
sion. On  the  29th  of  August,  1857,  the  banks  of  the  city 
of  New  York  owed  for  eighty-four  millions  for  deposits  and 
nine  millions  for  circulation,  —  in  all,  ninety-three  mil- 
lions,—  and  had  but  nine  millions  of  specie. 

Here,  perhaps,  it  is  proper  to  remark,  that  this  kind  of 
deposits  is  probably  unknown  in  any  other  country  than  the 
United  States.  In  England,  for  example,  the  rate  of  inter- 
est is  not  arbitrarily  fixed  by  government,  but  fluctuates 
from  time  to  time,  according  to  the  laws  of  currency  and 
the  demands  of  trade.  Consequently,  there  is  no  occasion 
for  this  indirect  mode  of  obtaining  extra  interest,  so  com- 
mon in  some,  if  not  all,  the  commercial  cities  of  the  Ameri- 
can Union. 

Compulsory  deposits  mean,  simply,  extra  interest;  but 
that  interest  is  paid  in  a  manner  most  burdensome  to  the 
depositors,  and  most  dangerous  to  the  banks.     The  former 


CHAP.  V.]  ANALYSIS   OP   DEPOSITS.  151 

must  lie  out  of  a  considerable  part  of  capital  which  they 
need  in  their  business ;  the  latter  must  enlarge  their  de- 
posits to  a  most  unreasonable  extent,  and  place  themselves 
at  the  mercy  of  the  depositors  in  any  time  of  severe  pres- 
sure or  panic. 

Of  the  second  class  of  deposits,  viz.  those  on  trust  or  for 
safe  keeping  merely,  it  may  be  said,  that  they  are  perfectly 
legitimate,  and  may,  to  a  certain  extent,  be  loaned  by  the 
banks  with  safety.  They  should  be  so  loaned  for  the  advan- 
tage of  the  public,  and  thus  no  capital  be  left  unemployed. 
An  obvious  benefit  arises  to  all  parties :  the  depositor  has 
his  money  securely  kept,  the  borrower  has  the  use  of  it, 
and  the  bank  rightfully  gets  interest  upon  so  much  of  the 
sum  as  it  has  loaned. 

The  third  class  of  deposits  may  be  described  as  follows :  — 

(a)  A  business  man,  who  is  making  sales  each  day,  will 
receive,  in  payment,  notes  of  all  the  different  kinds  in  cir- 
culation. He  will  also  receive  checks  on  different  banks. 
All  these  he  will  deposit  in  bank  ;  and  the  amount  is  passed 
to  his  credit,  and  becomes  a  bank  deposit. 

(&)  He  will  also  receive  notes  of  hand,  drafts,  and  bills 
of  exchange,  in  payment.  All  these,  when  nearly  due,  he 
will  deposit  in  bank ;  and,  when  paid,  they  are  passed  to  his 
credit. 

(c)  Or,  if  he  desires  to  anticipate  the  payment  of  such 
notes,  he  may  ask  the  bank  to  deduct  the  interest  (and 
exchange,  if  there  be  any),  and  place  the  amount  to  his 
credit ;  and  this  the  bank  will,  in  ordinary  circumstances, 
be  ready  to  do ;  and  the  amount  so  passed  to  the  credit  of 
the  customer  will  constitute  a  part  of  the  deposits  of  the 
bank. 

ARE   BANK   DEPOSITS   CURRENCY? 

Lord  Overstone,  one  of  the  best  authorities,  has  main- 
tained the  negative  ;  but  most  writers  *  in  this  country  take 

*  We  do  not  know  of  any  intelligent  writer  in  this  country  who  now 
denies  that  deposits  are  as  truly  currency  as  the  circulation  itself. 


152  EXCHANGE.  [BOOK   III. 

the  affirmative  side  of  the  question:  indeed,  there  are,  at  the 
present  time,  few,  if  any,  who  doubt  that  deposits  are  cur- 
rency. The  New- York  Board  of  Currency  has  given  its 
verdict  unequivocally  as  follows :  "  They  constitute  at  this 
time  Jive-sixths  of  the  active  currency  of  this  cityP  See  the 
official  report  of  that  association  for  November,  1858.  No 
array  of  authorities,  however,  but  an  examination  of  facts, 
should  determine  the  question. 

Deposits  are  an  instrumentality  by  which  by  far  the 
greatest  amount  of  values  are  transferred  in  commercial 
centres.  They  discharge  debts,  purchase  commodities,  and 
perform  all  the  functions  of  currency. 

For  example,  A  has  a  deposit  in  the  Merchants'  Bank. 
He  purchases  of  B  a  bill  of  sugars,  amounting  to  ten 
thousand  dollars,  and  pays  for  the  same  with  a  check  on 
that  bank,  with  which  B  either  draws  the  notes  or  specie  of 
the  bank,  or  has  the  check  passed  to  his  credit  by  the  bank. 
This  transaction  has  been  equivalent  to  the  transfer  of  ten 
thousand  dollars  in  value  from  one  party  to  the  other. 

If  A  owed  B  a  note  of  ten  thousand  dollars,  he  might  pay 
it  in  the  same  way. 

Now,  what  difference  did  it  make  to  A  whether  he  had  ten 
thousand  dollars  of  bank-notes  in  his  till,  or  an  equal 
amount  to  his  credit  in  the  bank  ?  Clearly,  not  the  slight- 
est. One  was  as  truly  currency  as  the  other.  If  A  was 
pondering  the  question  whether  he  should  purchase  the 
sugar  for  cash  (i.e.,  immediate  payment),  did  not  the  con- 
sciousness that  he  had  ten  thousand  dollars  to  his  credit 
in  bank  operate  on  his  decision  precisely  to  the  same 
extent  as  if  he  had  ten  thousand  dollars  of  bank-notes  in 
his  pocket-book?  Undoubtedly.  Where,  then,  is  the  dif- 
ference ?  And,  if  all  this  would  be  true  in  the  case  of  A, 
then  in  the  case  of  any  one  similarly  situated  ;  and  therefore 
we  must  conclude,  that  deposits  are,  in  their  nature  and  in- 
fluence, of  the  same  character  as  bank-notes,  and,  of  course, 
are  currency. 


CHAP    V.]  ANALYSIS   OP  DEPOSITS.  153 

All  bankers  and  business  men  are  well  satisfied  that 
deposits  are  even  more  active  by  far  in  transferring  values 
than  the  bank  circulation  ;  that  a  much  greater  number  of 
exchanges  is  made  with  deposits  than  with  an  equal  amount 
of  bank-notes. 

A  little  reflection  will  satisfy  any  one  that  such  is  the 
fact.  The  sum  of  ten  thousand  dollars,  for  example,  might 
easily  pay  in  a  single  day,  in  ten  different  transfers  by 
checks,  a  total  of  one  hundred  thousand  dollars. 

This  would  not  be  an  extravagant  supposition ;  but  it 
would  be  quite  improbable  that  bank-notes  make  ten  pay- 
ments in  a  single  day. 

The  efficiency  of  money,  or  its  substitutes,  depends  greatly 
upon  the  rapidity  with  which  exchanges  are  made.  John 
Stuart  Mill  recognizes  this  principle ;  and  it  is  a  very  obvi- 
ous one.  It  is  on  that  principle  that  we  see  the  propriety 
of  admitting,  that,  although  the  active  deposits  in  bank  may 
be  less  than  its  notes,  yet  the  greater  rapidity  with  which 
they  are  used  makes  the  whole  amount  equivalent  in  their 
effects  to  an  equal  amount  of  bank-notes. 

The  currency  of  any  country  is  as  its  quantity  multiplied 
by  the  rapidity  of  its  circulation.  This  consideration  will 
lead  us  to  regard  the  whole  amount  of  deposits  as  equal  in 
effect  to  an  equal  amount  of  circulation. 

STOCKS  AS  IMMEDIATE  EESOURCES. 

Here  it  may  be  proper  to  explain  why  we  have  not  placed 
the  item  of  "  stocks  "  held  by  the  banks  amongst  their  im- 
mediate resources.  Many  persons  seem  disposed  to  regard 
them  Jas  such.  But,  so  far  as  the  quality  and  character  of 
the  currency  are  concerned,  the  stocks  held  by  the  banks 
do  not  essentially  differ  from  any  other  securities.  Sup- 
pose a  severe  pressure  for  specie  comes  on,  what  can 
they  do  with  them  ?  Force  the  sale,  and  realize  the  money 
for  them  ?      This   cannot  be   done,  of  course,   at  such  a 


154  EXCHANGE.  [BOOK   III. 

time,  except  at  a  great  sacrifice ;  besides,  if  they  do  this, 
what  will  the  banks  receive  for  the  stocks  sold  ?  Their 
own  notes  and  deposits.  There  is  nothing  else  in  which 
the  stocks  can  be  paid  for.  But  if,  after  having  received 
their  notes  in  this  way,  they  refuse  again  to  loan  them, 
they  contract  the  currency  by  so  much,  and  increase  the 
pecuniary  distress  by  all  that  amount ;  if  they  do  reloan 
the  notes,  they  have  gained  no  relief  to  themselves  by  the 
operation.  The  great  object  desired  is  to  relieve  the  pres- 
sure for  money :  the  sale  of  the  stocks  will  have  the  op- 
posite effect.  Hence  they  cannot  be  regarded  as  the 
immediate  resources. 


CHAPTER  VI. 

MIXED  CURRENCY. —  FLUCTUATIONS  IN  QUANTITY  AND  QUALITY. 

We  have  explained  the  organization  of  mixed-currency  in- 
stitutions, the  character  of  their  operations,  the  quality  and 
form  of  their  issues.  We  pass  now  to  consider  this  cur- 
rency in  its  several  relations  to  the  public  wealth.  Such  an 
inquiry  will  demand  great  carefulness  and  impartiality,  and 
must  necessarily  be  made  in  detail. 

We  have  two  grand  questions  which  arise  naturally  at 
the  start : — 

1st,  Does  it  perform  satisfactorily  the  functions  of  mon- 
ey ?  If  we  answer  this  inquiry  favorably,  we  have  still  to 
ask, — 

2d,  What,  and  how  great,  are  its  effects  on  public  inter- 
ests, beyond  the  proper  effects  of  value  currency  ? 

These  questions  are  so  full  of  interest  to  all  the  depart- 
ments of  wealth,  are  so  deeply  obscured  by  prejudice  and 
misapprehension,  and  are  so  especially  important  at  the 
present  time,  that  their  discussion  will  be  protracted  through 
several  chapters. 


CHAP.  VI.]  MIXED   CURRENCY.  155 


1st,   DOES  A   MIXED  CURRENCY  SATISFACTORILY  PERFORM  THE 
FUNCTIONS   OF   MONEY? 

Those  functions  are  as  already  stated,  —  to  act  as  a  me- 
dium of  exchange,  and  to  be  a  standard  of  value. 

Does  a  mixed  currency  perform  them  well  ?  We  answer, 
no.  The  essential  quality  of  such  a  currency,  which  unfits 
it  to  act  well  as  either  a  standard  of  value  or  a  medium  of 
exchange,  is  this :  — 

IT  IS  NOT  GOVERNED  BY  THE  LAWS  OF  VALUE. 

It  is  subject  to  quite  other  laws.  It  varies  as  to  its 
volume  and  character ;  but  we  do  not  find  that  it  does  this 
out  of  respect  for  value.  The  great  principle  of  value  is, 
demand  creates  supply  ;  supply  satisfies  demand.  They 
are  measured  against  each  other,  and  are  found  equal. 
There  is  no  supply  which  demand  does  not  call  for :  there  is 
no  supply  which  is  not  enough  for  demand.  And  the  reason 
for  this  perfect  equality  is  that  value  cannot  exist  without 
labor.  The  same  cause  that  increases  supply,  expands  de- 
mand to  the  same  proportions :  the  same  cause  that  restricts 
supply,  reduces  demand  correspondingly. 

A  mixed  currency  is  not  regulated  in  this  way.  In  so 
far  as  it  has  not  value,  it  is  not  controlled  by  the  laws  of 
value. 

It  is  put  out  or  taken  in  by  bank  managers  at  their 
pleasure,  and  for  their  profit.  It  is  not  produced  by  labor. 
This  last  fact  removes  the  gravitation  which  alone  can 
secure  a  currency.  It  makes  it  a  thing  to  be  blown  about 
by  every  breeze,  carried  up  or  carried  down  with  the  cur- 
rents, or  whirled  around  in  the  eddies  of  trade.  It  should 
be  stable,  and  not  sport  for  the  winds.  There  should  be 
a  reason  for  the  putting-out  or  taking-in  of  every  dollar  of 
money ;  and  that  reason  should  be  found  in  the  laws  of 
value 


156  EXCHANGE.  [BOOK   III. 

Now,  this  law  controls  the  expansion  or  contraction 
of  money,  or  a  value  currency.  If  it  is  increased,  as  it  may 
be  in  the  natural  course  of  commercial  transactions,  it  is 
because  actual  money  has  been  brought  into  the  country  by 
the  balance  of  trade ;  but  a  mixed  currency  is  increased 
by  the  voluntary  and  interested  action  of  bank  managers, 
without  regard  to  the  laws  of  value,  and  without  the  addi- 
tion of  a  dollar  to  the  real  money,  or  wealth,  of  the  country. 
The  increase  of  money  by  importation  takes  place  in  obe- 
dience to  causes  that  are  gradual  and  appreciable  ;  and  any 
one  who  watches  the  course  of  commerce  can  anticipate 
its  arrival.  If  it  comes  in  excess,  from  any  unusual  source, 
it  easily  and  naturally  passes  off  to  other  countries,  till  the 
balance  is  restored.  Real  money  is  like  the  water  of 
the  globe,  rising  and  falling  by  natural  laws,  and  keeping 
its  level  by  its  own  mobility.  If  a  redundance  exists  in  one 
spot,  there  is,  for  that  reason,  a  deficiency  somewhere  else. 
Where  it  is,  it  is  less  valued ;  where  it  is  not,  it  is  the  more 
desired ;  and  the  equilibrium  is  soon  restored.  No  artificial 
appliances  or  legal  enactments  are  needed  to  keep  true 
money  at  a  level  the  world  over. 

We  have  found  that  the  quantity  of  a  mixed  currency  is 
not  governed  by  the  laws  of  value.  Do  we,  then,  find  that 
it  is  controlled  by  accident?  It  would  be  better  so,  for 
there  would  be  more  chances  of  its  coming  right.  But, 
on  the  contrary,  we  find  laws  positively  mischievous  sub- 
stituted for  the  wholesome  operation  of  supply  and  de- 
mand. 

Firstly,  Of  expansion.  The  more  that  is  issued  of  a 
mixed  currency,  the  more  will  be  wanted.  The  supply 
does  not  satisfy  the  demand :  it  excites  it.  Like  an  un- 
natural stimulus  taken  into  the  human  system,  it  creates 
an  increasing  desire  for  more  ;  and  the  more  it  is  gratified, 
the  more  insatiable  are  its  cravings. 

There  are  two  reasons  for  this :  one,  that,  as  the  currency 
is  expanded,  prices  are  raised  correspondingly,  and  more 


CHAP.  VI.]  MIXED    CURRENCY.  157 

currency  is  demanded  to  effect  the  same  exchanges ;  the 
other,  that  the  speculation  inevitably  following  the  rise  of 
prices  leads  to  an  enormous  extension  and  repetition  of  in- 
debtedness, which  requires,  for  its  discharge,  a  greatly 
increased  amount  of  the  circulating  medium.  Thus,  by 
the  action  and  interaction  of  these  causes,  the  demand 
for  the  issue  of  this  kind  of  currency  is  certain  to  be  great- 
est when  it  is  already  redundant.  All  this,  of  course,  is 
quickened  and  helped  by  the  fact  that  the  manufacturers 
of  this  currency  are  ready  and  eager  to  crowd  upon  the 
public  all  it  will  take,  like  a  very  earnest  friend  who  thrusts 
his  purse  into  your  hand  before  you  are  quite  decided  that 
you  wish  to  borrow. 

Secondly,  Of  contraction.  We  have  seen  the  forces  that 
raise  the  currency  higher  and  higher.  We  have  not  seen 
that  it  is  done  for  the  public  good,  or  in  obedience  to  a  call 
of  trade.  We  might  suppose  that  there  would  be  an 
unending  progress  in  this  direction,  till  any  degree  of  ex- 
pansion should  be  reached,  inasmuch  as  the  law  of  value 
does  not  govern  a  product  into  which  the  element  of  la- 
bor does  not  enter.  It  is  not,  therefore,  the  expense  of 
multiplying  it,  nor  is  its  increase  limited  by  any  consideration 
of  utility.  If  every  dollar  of  credit  were  called  a  million 
dollars,  it  would  effect  an  exchange  just  as  well.  The  only 
difference  would  be  the  work  of  adding  six  ciphers  in 
accounting.  No :  the  cause  that  limits  the  expansion,  and 
finally  produces  contraction,  is  the  liability  of  the  notes 
to  be  presented  for  payment  in  money. 

The  occasion  for  this  cause  to  operate  may  be  almost  any 
thing, —  a  political  convulsion,  an  adverse  balance  of  trade, 
a  failure  of  some  large  trading  or  banking  company,  or  an 
unaccountable  mood  of  the  popular  mind. 

We  will  take  that  one  which  is  most  common  and  sensi- 
ble,— an  adverse  balance  of  trade.  If  it  be  large,  the  demand 
for  specie  which  it  occasions  will  create  a  profound  sensation 
among  the   banks.     With   actual  money,  there   is,  under 


158  EXCHANGE.  [BOOK   III. 

these  circumstances,  no  reason  for  excitement  or  alarm  : 
ten  million  dollars  of  the  currency  will  discharge  that 
amount  of  debt  abroad,  and  the  currency  at  home  is  re- 
duced but  so  much.  A  mixed  currency  has,  in  itself,  no 
power  whatever  to  satisfy  a  foreign  creditor.  If  ten  million 
dollars  are  to  be  paid  abroad,  it  must  be  taken  from  the 
specie  of  the  banks ;  the  basis  of  the  currency  is  so  much 
diminished,  and  the  circulation  must  be  curtailed  accord- 
ingly ;  that  is,  notes  must  be  brought  in,  and  not  put  out 
again  till  the  basis  is  restored.  If  the  proportion  of  specie, 
as  is  the  case  on  an  average  in  this  country,  is  only  as 
one  to  five  of  notes,  then  the  export  of  ten  million  dollars 
abroad  must  cause  a  contraction  to  the  extent  of  fifty  mil- 
lion dollars  at  home.  The  removal  of  so  much  currency, 
and  of  that  very  part  which  circulates  most  actively,  causes 
stringency ;  and  stringency  causes  suspicion.  Let  another 
ten  millions  be  called  for  out  of  the  specie  basis,  and 
affairs  will  become  very  critical.  The  legitimate,  effect  of 
the  export,  so  far,  would  be  to  contract  the  currency  one 
hundred  million  dollars  ;  but  another  cause  is  introduced 
now.  Vague  apprehensions  abound,  everybody  gets  prudent, 
many  are  scared.  Here  is  another  reason  for  contraction. 
With  a  value  currency,  the  fact  that  it  was  especially 
wanted  would  be  a  reason  why  it  should  stay.  Not  so  with 
credit  money :  it  won't  bear  to  be  looked  in  the  face. 

It  is  hardly  necessary  to  trace  the  course  of  contractions, 
they  are  so  familiar  to  the  American  mind. 

The  banks  know  their  own  position  better  than  any  one 
else.  They  understand  precisely  what  they  must  do.  They 
act  instantaneously.  They  curtail  their  loans.  They  know 
that  trouble  is  at  hand,  and  they  propose  to  meet  it  in  the 
best  way  for  themselves.  They  know  that  their  notes  may 
now  prove  their  ruin,  and  they  propose  to  get  them  out  of 
the  way  as  fast  as  possible. 

There  are  two  classes  of  banks :  — 

1st,  Those  who  transact  all  their  business  in  an  honor- 


CHAP.  VI.]  MIXED  CURRENCY.  159 

able  manner,  and,  so  far  as  the  nature  of  the  currency  they 
issue  will  admit,  on  a  secure  basis.  They  are  careful  not 
to  extend  their  loans  beyond  their  means,  and  they  keep  a 
respectable  amount  of  specie. 

2d,  Those  who  get  out,  and  keep  out,  all  they  can,  and 
carry  their  circulation,  deposits,  and  loans  as  high  as  pos- 
sible, without  regard  to  the  specie  in  their  vaults.  This 
class  is  numerous,  especially  among  those  of  small  capital. 
They  rely  on  their  baseless  circulation  for  extraordinary 
profits. 

In  case  of  a  demand  for  specie,  the  latter  class  are  obliged 
to  call  for  assistance  from  the  former,  who,  willing  or  un- 
willing, are  equally  obliged  to  give  it.  The  "  feeble  banks  " 
must  be  sustained,  or  the  whole  system  will  be  suspected. 
If  these  be  allowed  to  dishonor  their  notes,  a  run  will  be 
made  at  once  on  all  the  rest ;  and,  having  as  we  see  only 
one  dollar  in  five  to  pay  with,  they  must,  of  course,  soon 
stop  paying  altogether. 

It  should  be  borne  in  mind  that  these  contractions  and 
expansions  are  not  imaginary,  not  possible  only,  not  merely 
occasional,  nor  at  all  local,  but  occur  frequently  and  every- 
where within  the  field  of  such  a  currency. 

It  is  commonly  said  that  the  banks  only  increase  their 
issues  as  demanded  by  the  wants  of  trade  ;  that  they  extend 
their  credits,  because  the  public  require  them  as  business 
facilities. 

If  this  were  true,  it  would  be  of  no  consequence  in  the 
discussion;  because,  the  laws  of  value  having  been  dis- 
turbed in  this  matter,  the  demand  is  no  longer  normal. 
We  have  no  longer  the  assurance  that  trade  will  call  into 
use  just  that  amount  of  currency  which  it  needs. 

But  it  is  not  true.  The  movement  always  commences 
with  the  banks.  When,  by  a  monetary  revulsion,  their 
circulation  and  deposits  have  been  reduced  so  low  that 
they  feel  safe  in  commencing  another  expansion,  the  panic 
being  over,  the  banks  begin  to  offer  extraordinary  induce- 


160  EXCHANGE.  [BOOK   IN. 

ments  to  their  customers  to  borrow  money.  They  will 
discount  all  good  paper  offered,  even  if  it  has  a  long  time 
to  run.  It  is  not  uncommon,  at  such  times,  to  solicit  the 
privilege  of  making  loans.*  As  soon  as  this  state  of  things 
takes  place,  all  business  men  begin  speculative  operations; 
for  prices  have  begun  to  rise.  Speculation  will  give  a  still 
greater  rise  to  prices,  and  cause  a  still  greater  demand  for 
currency.  The  expansive  force  is  now  in  full  operation, 
and  is  sure  to  increase  in  power  till  by  revulsion  the 
equilibrium  is  restored. 

But  it  may  be  asked,  are  there  not  natural  tides  in  busi- 
ness, irrespective  of  a  mixed  currency  ?  Certainly ;  but 
they  are  never  aggravated  or  intensified  until  they  end  in 
panic  or  ruin.  They  are  calculable  and  healthful.  They  are 
tests  of  business  character.  They  may  go  to  the  extent  of 
exposing  the  emptiness  of  bad  concerns,  but  never  destroy 
those  that  are  good.  When  they  occur,  money  will  be 
wanted  to  pay  debts ;  but,  when  one  debt  is  paid,  there  is 
just  as  much  money  as  before  with  which  to  pay  others. 
The  pressure  does  not  annihilate  any  part  of  the  cur- 
rency. The  party  who  receives  a  payment  does  not  put 
the  money  away  in  vaults,  not  to  appear  again  till  the  crisis 
is  past.  The  means  of  payment  can  be  reduced  only  by 
the  amount  actually  sent  out  of  the  country.  Gold  and 
silver  are  as  little  injured  by  panic  as  by  fire. 


CHAPTER  VII. 

TABLES   AND   DIAGRAMS   OF  MIXED-CURRENCY   FLUCTUATIONS. 

We  have  shown,  from  the  reason  of  the  case,  that  a  mixed 
currency  is  not  governed  by  the  laws  of  value ;  and  that 
therefore  its  variations  are  controlled  by  other  principles, 

*  This  is  within  the  personal  knowledge  of  the  writer  as  a  bank  director. 


CHAP.  VII.] 


TABLES   AND   DIAGRAMS. 


161 


which  give  no  guaranty  to  the  public  good,  but,  on  the 
contrary,  threaten  great  mischief  to  the  community,  both 
by  expansion  and  contraction. 

We  now  propose  to  show,  by  facts  taken  from  official 
statistics,  that  such  fluctuations  are  frequent  and  violent. 

We  introduce  a  diagram,  carefully  prepared,  for  the  pur- 
pose of  showing,  in  the  most  compact  and  striking  form, 
these  fluctuations  of  the  currency,  both  in  quantity  and 
quality. 

The  following  table  exhibits  the  fluctuations  in  the  ab- 
solute quantity  of  the  mixed  currency  (circulation  and 
deposit)  of  the  United  States  from  1834  to  1859  inclusive, 
a  period  of  twenty-six  years. 


Table  L 

1834  .  . 

.  .  170,000,000 

1847  .  . 

.  .  197,000,000 

1835  .  . 

.  .  186,000,000 

1848  .  . 

.  .  231,000,000 

1836  .  . 

.  255,000,000 

1849  .  . 

.  .  205,000,000 

1837  .  . 

.  276,000,000 

1850  .  . 

.  240,000,000 

1838  .  . 

.  200,000,000 

1851  .  . 

.  284,000,000 

1839  .  . 

.  225,000,000 

1852  .  . 

.  328,000,000 

1840  .  . 

.  182,000,000 

1853  .  . 

.  348,000,000 

1841  .  . 

.  172,000,000 

1854  .  .  . 

.  392,000,000 

1842  .  . 

.  146,000,000 

1855  .  .  . 

.  377,000,000 

1843  .  . 

.  114,000,000 

1856  .  . 

.  408,000,000 

1844  .  . 

.  159,000,000 

1857  .  . 

.  445,000,000 

1845  .  . 

.  177,000,000 

1858  .  . 

.  341,000,000 

1846  .  .  . 

.  202,000,000 

1859  .  . 

.  452,000,000 

These  facts  are  collected,  as  nearly  as  possible,  from  the 
returns  made  at  the  beginning  of  the  years  mentioned. 
Therefore  the  contractions  or  expansions  made  during  a 
year  do  not  appear  till  the  return  of  the  next  year.  For 
example,  the  great  contractions  of  1837  and  1857,  beginning 
several  months  after  January,  do  not  exhibit  their  effects 
till  the  currency  returns  of  the  years  1838  and  1858. 

11 


162 


EXCHANGE. 


[book  in. 


Diagram  No.  1  exhibits  the  fluctuations  in  the  currency 
(circulation  and  deposits),  and  also  the  proportion  of  specie, 
from  1834  to  1859  inclusive,  both  reckoned  per  capita. 

The  upper  lino  indicates  the  currency,  the  lower  the 
specie,  and  show  the  fluctuations  of  both. 

The  annexed  diagram  shows  distinctly  the  actual  fluctua- 
tions in  the  currency,  because  its  amount,  at  the  several 
periods,  is  reckoned  per  capita.  This  is  a  far  more  correct 
mode  of  getting  at  the  real  changes  than  taking  the  absolute 
quantity. 

The  diagram  is  prepared  from  a  table  published  by  the 
Massachusetts  Bank  Commissioners,  in  their  Report  of  1861, 
furnished  by  J.  V.  Yatman,  Esq.,  of  New  York,  to  whom 
the  public  are  indebted  for  valuable  contributions  of  a  sta- 
tistical character. 

The  upper  line  shows  the  fluctuations  in  the  quantity  of 
the  currency :  the  lower  line  indicates  its  quality  from  time 
to  time. 

The  following  table  shows  the  extreme  fluctuations  in  the 
quantity  of  the  currency  of  the  United  States  per  capita,  at 
different  times,  with  the  corresponding  variations  per  cent 
in  its  quality :  — 


Table  II.,  showing  the  Extreme  Fluctuations  in  the  Currency  of  the  United  States 
per  Capita  at  different  Times,  with  the  Corresponding  Variations  in  its  Quality,  or 
the  Proportion  of  Specie  held  for  its  Redemption. 


Years. 

Currency 
per  capita. 

11.82 

Fluctuations. 

Per 
cent. 

Quality,  or  specie 
to  circulation. 

Variations  in  qualify. 

Per 

cent. 

1834 

15J  to  100 

. 

*1837 

17.61 

Expansion 

50 

13*  to  100 

Depreciation 

11* 

1840 

10.70 

Contraction 

39 

18    to  100 

Improvement 

33 

1843 

6.18 

42 

29    to  100 

„ 

61 

1846 

9.94 

Expansion 

61 

21    to  100 

Depreciation 

36 

1849 

9.18 

Contraction 

7 

21    to  100 

Stationary 

0 

1852 

13.31 

Expansion 

45 

15*  to  100 

Depreciation 

27 

1855 

13.93 

13 

14    to  100 

10 

•1867 

15.50 

11 

13    to  100 

7 

1858 

11.55 

Contraction 

26 

22*  to  100 

Improvement 

73 

1859 

14.90 

Expansion 

23 

23    to  100 

)> 

2 

*  Years  when  the  banks  suspended.  Observe  the  great  expansion  between 
the  years  1834  and  1837  of  some  fifty  per  cent ;  and  between  1849  and  1857 
of  some  seventy  per  cent. 


Pen 
Capila 

$17 


-16. 
-15 


IHAGKAM  XI 


-14 

-13 
"12 

-11 
-10 

-9 


i8a 


-6 


Showing  the  fluduatwn   of:  the    currency 
of  f/ie   United-    Stales 


rifir/  ///r  prvpcriion    of  specie  it 
(/rr///a7/rn     ///i//  Deposits 


to 


Gapilq. 

SIT 


-15 
«14 
-13 
-12 

-II 
-10 
-9 


1V13 


Circulation    aftd'Beposiis per  Capita,. 


CHAP.  VII.] 


TABLES   AND   DIAGRAMS. 


163 


Table  III.  —  The  following  Table  exhibits  the  Composition  of  the  Mixed  Currencia 
of  the  several  Slates  of  the  Union,  Jan.  1, 1860;  that  is,  the  Percentage  of  Specie  to 
the  Circulation  and  Deposits  in  the  Currency  of  each  State:  — 


Per 

cent. 

Louisiana  .... 

38.6 

Missouri    .     . 

37. 

Georgia     .    . 

23.7 

Kentucky  .     . 

23.4 

Tennessee .     . 

23. 

North  Carolina 

22.08 

Indiana     .     . 

22.3 

Alabama    .     . 

22.2 

Maryland  .     . 

21.4 

Pennsylvania 
Iowa  .  .  . 
Virginia  .  . 
New  York  . 
South  Carolina 
Ohio  .  •  . 
Massachusetts 
Florida  .  . 
Maine  .     .     . 


21.3 

20. 

16.7 

15.6 

15.5 

15.2 


Delaware .     .  . 

New  Jersey  .  . 

Connecticut  .  . 

Rhode  Island  . 

New  Hampshire 

Wisconsin     .  . 

15.1 1  Vermont  .    .  . 

10.5 1  Michigan  .    .  . 

10.      Illinois      .     .  . 


8.9 

7.5 

6.3 

5.7 

5.5 

4.2 

4. 

2.3 


But  there  are  variations,  not  only  in  the  general  currency 
of  the  United  States,  such  as  we  have  indicated,  but  also  in 
the  currency  of  each  State,  at  different  periods. 

We  take  that  of  Massachusetts,  in  illustration :  — 

Table  IV.,  exhibiting  the  Quality  of  the  Currency  of  Jfassachusetts. 


1835. 

1837. 
8 

1840. 

1843. 

1851. 

1857. 
8.9 

1859. 

1860. 

Specie,  per  cent    .    . 

7.1 

18| 

44.1 

7.5 

14.6 

15.1 

From  this  it  appears  that  the  highest  proportion  of  specie 
was  in  1843,  which  year  marked  the  termination  of  the 
great  monetary  convulsion  that  commenced  with  the  failure 
of  the  banks  in  1837,  at  which  date  the  banks  of  Massachu- 
setts had  but  eight  per  cent,  as  shown  above.  The  severe 
pressure  began  in  1836,  when  the  specie  was  seven. 

By  a  law  of  that  Commonwealth,  passed  in  1858,  the 
banks  are  required  to  keep  at  least  fifteen  per  cent  of  spe- 
cie. This  law  has  much  increased  the  average  amount  of 
specie. 

Another  fact  may  be  noticed  in  this  connection  ;  viz.,  that 
the  banks  of  Massachusetts  were,  to  a  considerable  extent, 
responsible  for  all  the  mixed-currency  circulation  in  New 
England,  because  the  banks  of  the  neighboring  States  had 
all  their  bills  redeemed  in  Boston.  Those  of  Vermont,  for 
example,  whose  average  specie  is  only  four  or  five  per  cent, 
kept  bank  balances  (not  actual  specie,  as  often  supposed) 


164  EXCHANGE.  [BOOK   in. 

with  certain  banks  which  were  under  obligations  to  redeem 
all  their  bills  as  fast  as  presented.  This,  of  course,  greatly 
enhanced  the  responsibilities  of  the  Massachusetts  banks, 
and  decreased  the  strength  of  their  currency. 

The  currency  of  New  England  was  thus  made  a  complete 
unit.  The  system  of  redemption,  first  established  by  the 
Suffolk  Bank  of  Boston  about  forty  years  ago,  was  so  per- 
fected, that,  while  the  banks  of  each  State  might  act  inde- 
pendently, they  were  bound  together  by  a  common  tie,  and 
involved  in  a  common  fate.  This  was  known  as  the  "  Suf- 
folk-Bank system." 

Yolumes  of  statistics  might  be  given  of  the  same  general 
character ;  but  these,  it  is  presumed,  are  sufficient  to  show 
the  fluctuating  character  of  the  mixed  currency  of  the  United 
States,  both  in  quantity  and  quality ;  and  of  course,  in  de- 
gree, of  all  other  countries  where  such  a  currency  exists : 
for  it  is,  at  all  times  and  everywhere,  the  same  in  its  gen- 
eral characteristics.  The  quality  may  and  does  vary  greatly 
in  different  communities,  as  we  have  seen  it  in  the  different 
States  of  the  American  Union.  But  this  is  merely  a  ques- 
tion of  degree. 


CHAPTER  VIII. 

MIXED   CUERENCY   AS   A  MEDIUM   OF  EXCHANGE. 

Having  shown  that  a  mixed  currency  is  certain  to  expand 
and  contract,  without  reference  to  the  healthful  and  harmo- 
nious provisions  of  value,  and  to  a  degree  more  extreme  and 
dangerous  than  a  currency  composed  of  real  money,  we  are 
prepared  to  answer  summarily  the  principal  question. 

Does  a  mixed  currency  perform  satisfactorily  the  functions 
of  money  ? 

1st,  Does  it  act  efficiently  as  a  medium  of  exchange  ? 

Currency,  regarded  merely  as  a  medium  of  exchange,  may 
be  said  to  perform  two  offices :   (a)  To  transfer  commod- 


CHAP.  VIII.]  MEDIUM   OP  EXCHANGE.  165 

ities  from  one  person  to  another.  For  this  purpose,  a 
mixed  currency,  having  a  circulation  wholly  of  paper,  is 
found  to  be  portable,  readily  counted,  easily  carried,  safely 
kept,  and  is,  consequently,  as  convenient  as  any  agent  that 
could  reasonably  be  desired.  (6)  To  discharge  indebted- 
ness between  different  parties.  For  this  purpose,  the  thing 
to  be  desired  is,  that  currency  should  be  reliable ;  that  is, 
that  there  should  be  nothing  in  its  own  nature,  which  dis- 
qualifies it  to  act  fully,  at  all  times,  as  a  means  of  discharg- 
ing obligations. 

Coin  is  always  perfectly  reliable  for  the  payment  of  debts. 
When  one  debt  has  been  discharged  by  it,  the  coin  is  just 
as  available  and  acceptable  for  the  discharge  of  a  second  or 
any  succeeding  debt.  If  gold  and  silver  are  called  for  by 
foreign  obligations,  they  retain  their  full  power  to  discharge 
them. 

There  can  never  be  a  scarcity  of  them  that  an  earnest  demand 
will  not  create  a  supply  for.  If  a  community  wants  them 
very  much,  it  will  certainly  get  them. 

They  crowd  to  their  best  market,  as  truly  as  cotton  or 
wheat. 

We  here  make  two  principal  statements :  — 

A  foreign  demand  is  the  only  cause  that  can  take  away 
the  real  money  of  a  people.  We  have  seen  that  an  indefi- 
nite number  of  causes  may  take  away  a  currency  based,  in 
any  degree,  on  credit. 

But,  again,  a  foreign  demand  can  only  take  away  its  own 
amount  of  real  money.  We  have  seen  that  such  a  cause 
takes  away  an  amount  of  mixed  currency  of  which  the  quan- 
tity required  abroad  is  only  one  factor ;  the  other  factor 
being  that  number  which  represents  the  proportion  between 
the  bulk  of  the  currency  and  the  specie  basis.  In  these  two 
statements  are  clearly  shown  the  entire  unreliability  of  mixed 
currency  to  discharge  indebtedness.  The  man  who  prom- 
ises to  pay  money  can  never  know  what  may  be  the  demand 
for  specie,  arising  from  a  want  of  confidence  in  the  banks, 


166  EXCHANGE.  [BOOK   III. 

or  from  a  necessity  of  export ;  and,  of  course,  can  never  be 
safe  in  giving  his  notes  predicated  upon  the  currency  as  it 
exists  at  the  time. 

So  far  as  the  fluctuations  we  have  shown  derange  general 
plans  of  business,  distort  prices,  work  injustice  to  one  party 
of  every  bargain,  and  tend,  by  such  inequalities  and  un- 
certainties, to  discourage  steady  enterprise,  they  do  not 
present  themselves  here  for  examination.  We  shall  meet 
them,  when  discussing  a  mixed  currency  as  performing  its 
function  as  a  standard  of  value.  We  have  to  do  here,  not 
with  the  unfairness  and  injustice  with  which  indebtedness  is 
discharged  under  such  a  currency,  but  with  the  difficulty 
or  impossibility, of  discharging  it  at  all. 

To  falsify  the  standard  of  value  is  a  serious,  but  not  neces- 
sarily a  ruinous  error.  It  takes  from  one  unjustly,  and 
adds  to  another ;  but  it  destroys  nothing  directly.  There 
are  fluctuations  in  the  currency,  found  in  our  national  ex- 
perience and  depicted  in  the  diagrams  given,  which  proceed 
to  an  entire  revulsion  of  the  body  of  trade.  Panic  is  not  a 
century  plant.  It  blossoms  and  bears  fruit  once  or  twice 
while  a  child  is  growing  up ;  many  times  while  a  man  re- 
mains in  business. 

How  does  a  mixed  currency  perform  the  functions  of  mo- 
ney, so  far  as  discharging  indebtedness  in  such  times  ? 

Let  us  suppose  the  case  of  the  best  man  in  the  commu- 
nity. He  has,  in  the  legitimate  course  of  business,  con- 
tracted obligations,  all  within  the  limit  of  his  abilities,  now 
coming  due.  The  banks  are  withdrawing  their  circulation 
as  largely  as  possible,  and  do  not  mean  to  let  it  out  again. 
The  fact  of  his  own  excellent  standing  is  of  no  moment  in 
securing  discounts ;  for  there  is  just  as  much  danger  to  the 
banks  in  his  having  their  notes  as  in  their  being  anywhere 
else.  It  is  the  peculiar  hardship  of  good  men,  in  such 
times,  that  it  is  not  their  credit,  but  the  credit  (that  is,  the 
condition)  of  the  banks,  which  is  to  decide  the  question  of 
loans.     With  a  value  currency,  on  the  other  hand,  the  only 


CHAP.  VIII.]  MEDIUM   OP  EXCHANGE.  167 

matter  of  importance  is  the  solvency  of  the  applicant  him- 
self. 

If  he  cannot  get  money,  he  cannot  meet  his  obligations  ; 
for  he  cannot  pay  in  merchandise  or  real  estate.  The 
money  is  not  to  be  had  ;  that  is,  if  the  banks  would  accom- 
plish what  they  must  do  to  save  their  credit. 

Of  course,  there  are  individuals  and  institutions,  who,  in 
consideration  of  high  premiums  and  full  security,  will  grant 
accommodations  to  a  limited  amount.  He  may  try  to  get 
along,  sacrificing  his  property  to  save  his  name,  and  paying 
twenty-four  or  thirty-six  per  cent  for  loans.  Perhaps,  if 
others  stood  well,  he  might  get  through ;  but  all  are  not  so 
firm  as  himself.  Most  have  less  accumulation  and  less 
credit.  His  debtors  fail  to  pay :  how  can  he  answer  his 
creditors?  If  he  tries  to  go  through,  the  payments  are  all 
one  way,  like  the  tracks  about  the  lion's  den.  He  has  to 
pay  both  sides  of  the  ledger. 

We  have  spoken  of  the  credit  element  of  a  mixed  cur- 
rency. But  panic,  suspicion,  apprehension,  are  the  deadly 
enemies  of  credit :  when  these  are  aroused  in  the  commu- 
nity, it  cannot  go  abroad.  Just  as  nearly  as  the  object  can 
be  accomplished  in  the  time  given,  all  forms  of  credit  will  be 
withdrawn.  But  this  will  produce,  in  its  several  degrees, 
stringency,  distress,  panic,  ruin. 

Is  it,  then,  too  much  to  say  that  credit  is  not  reliable  for 
the  discharge  of  indebtedness  ? 

The  element  of  credit  introduces  a  direct  hostility  between 
the  interests  of  those  who  control  the  currency  and  those 
who  wish  to  use  it.  The  interest  of  the  one  requires  that 
the  notes  shall  be  withdrawn.  The  interest,  nay,  the  life, 
of  the  other  requires  that  they  shall  be  kept  in  circulation. 
Is  there  any  such  hostility  in  a  value  currency  ?  Not  at  all. 
No  matter  how  intense  the  apprehension,  how  manifold  the 
suspicion,  how  frenzied  the  panic,  there  is  never  a  moment 
when  it  is  not  better  for  the  owner  that  such  money  should 
be  used  than  kept  out  of  use. 


168  EXCHANGE.  [BOOK   ID. 

We  have  said  that  a  sudden  and  severe  contraction  is 
necessary  whenever  any  cause  threatens  the  specie  basis  of 
a  mixed  currency.  Such  a  contraction  deprives  the  commu- 
nity of  the  means  of  meeting  obligations  undertaken  when 
the  currency  was  redundant. 

Hiil  this  contraction,  when  it  has  become  inevitable,  does 
not  take  place  without  danger  and  loss  to  the  banks  them- 
selves ;  danger  and  loss  being  the  proper  consequences  of 
such  operations.  The  banks  make  no  more  loans,  or  as  few 
as  possible.  The  means  of  discharging  debts  become  less 
and  less  in  the  community  each  succeeding  day,  until  the 
rate  of  interest  goes  up  to  two  or  three  per  cent  a  month, 
and  money  can  hardly  be  had  at  all. 

The  banks  now  find  themselves  in  this  dilemma :  if  they 
make  loans,  they  must  keep  paying  out  their  specie.  This 
will  soon  become  exhausted,  and  they  must  suspend  and  be 
dishonored.  If  they  do  not  continue  to  accommodate  their 
customers  with  the  usual  means  of  paying  debts,  the  latter 
must  succumb.  But,  if  their  customers  generally  fail,  the 
banks  will  lose  their  capital  (it  being  chiefly  in  the  form  of 
notes  given  by  individuals),  and  be  permanently  ruined. 
The  history  of  the  country  shows  on  which  horn  of  the 
dilemma  they  choose  to  be  impaled.  They  suspend  or  stop 
specie  payments,  and  then  furnish  the  public  with  an  abun- 
dance of  their  notes,  such  as  they  are. 

After  this  has  been  accomplished,  and  after  the  credit  of 
the  banks  has  been  exchanged  for  the  credit  of  the  individ- 
uals who  owe  them,  and  after  the  demand  for  specie  has 
ceased,  the  banks  can  resume  payments. 

It  may  be  said,  at  this  point,  that  the  result  we  have 
reached  does  not  seem  very  formidable ;  that,  let  it  but  be 
understood  the  banks  are  to  suspend  in  such  circumstances, 
we  can  by  this  means  still  have  the  advantages  of  a  mixed 
currency  in  favorable  times,  and  relieve  the  distress  when 
a  contraction  is  threatened.  The  answer  to  this  plea  will 
be  deferred  to  the  chapter  on  "  Fallacies,"  in  preference  to 
interrupting  the  present  line  of  argument. 


CHAP.  IX.]  STANDARD   OF  VALUE.  169 

CHAPTER  IX. 

MIXED   CURRENCY   AS   A   STANDARD   OP  VALUE. 

2d,  Does  a  mixed  currency  act  justly  as  a  standard  of 
value  ? 

This  function  of  money  is  of  a  very  important  character. 
It  lies  at  the  foundation  of  all  credit  and  all  business  calcu- 
lations. If  no  man  dealt  with  or  trusted  another,  or  waited 
a  day  to  receive  and  consume  the  reward  of  his  labor,  there 
would  be  no  great  need  of  such  a  standard.  It  would  then 
be  only  of  scientific  interest,  to  show  what  was  the  compara- 
tive wealth  of  different  communities  and  ages,  and  what  the 
fairness  of  their  several  systems  of  distributing  the  result 
of  industry  among  the  producing  classes.  If  every  act  of 
labor  received  its  own  reward,  in  a  distinct  form,  at  the 
time,  to  be  consumed  then  and  there,  a  standard  of  value 
would  be  of  less  practical  importance. 

But  whenever  there  is  the  slightest  exchange  of  com- 
modities or  association  of  laborers ;  whenever  one  man 
trusts  another  for  recompense  of  service,  or  applies  wealth 
and  toil  to  an  enterprise  in  the  faith  of  receiving  a  reward  at 
a  future  time,  —  a  standard  of  value  must  be  had,  so  that  all 
can  be  done  safely,  expeditiously,  and  justly.  Unless  some- 
thing possessed  the  property  of  being  a  standard  of  value, 
all  exchange  would  inevitably  be  confined  to  the  gross  and 
clumsy  form  of  barter.  It  has  already  been  included  in  the 
definition  of  money,  that  it  performs  this  office.  There  is 
not  a  possibility  of  taking  a  scientific  exception  to  this  state- 
ment; yet  a  great  deal  of  popular  controversy  has  arisen, 
which  we  are  obliged  to  stop  here  to  notice.  It  has  been 
said,  that  a  dollar,  for  example,  no  more  measures  the  value 
of  wheat,  than  wheat  does  the  value  of  the  dollar ;  that 
"  the  dollar  is  wholly  an  arbitrary,  conventional  standard, 
forced  on  the  people,  unjustly,  by  legislative  enactment." 


170  EXCHANGE.  [BOOK  III. 

Much  confusion  has  undoubtedly  been  caused  by  mis- 
taken views  of  what  is  really  meant  by  a  standard  of  value. 

Suppose  A  sells  B  a  tract  of  land,  and  agrees  to  take  five 
hundred  oxen  in  payment  at  a  future  day.  The  value  of  the 
land  sold  is,  in  this  case,  clearly  measured  by  the  oxen. 
These  latter  are  the  standard  by  which  the  value  of  the 
land  is  determined.  They  form  the  money,  or  currency,  by 
which  the  debt  is  legally  and  rightfully  to  be  discharged. 
The  oxen  here  occupy  precisely  the  position  of  the  dollar 
in  ordinary  contracts ;  and,  if  we  suppose  a  community  in 
which  they  are  altogether  used  as  money,  they  become, 
without  any  necessary  legal  enactment,  the  universal  stand- 
ard, or  that  by  which  all  other  values  are  measured  and 
expressed.  Value  must  be  determined  in  some  way  ;  and  it 
can  only  be  done  by  comparison, — by  measuring  the  land 
against  oxen,  wheat,  gold,  or  something  else  that  has  value. 

As  long  as  the  land  was  measured,  in  the  single  instance, 
by  the  oxen,  so  long  each  measured  the  other  alike ;  but, 
when  the  use  of  the  oxen  was  extended  to  a  comparison 
with  each  other  commodity  in  the  market,  and  all  others 
together,  then  it  became  as  improper  to  say  that  the  land 
measured  the  oxen  as  to  say  that  the  wood  or  the  cloth 
measure  the  yardstick  by  which  their  length  and  breadth  are 
universally  determined.  The  government  does  not  insist 
that  length  or  breadth  shall  be  determined  in  all  bargains 
by  the  yardstick.  Men  can  and  do  take  arms  and  fingers 
for  the  purpose,  or  any  thing  else  they  please :  it  is  nothing 
to  government,  which  only  says  what  a  yard  shall  be. 

So,  by  universal  consent,  mankind  have  agreed  to  measure 
every  thing  by  the  precious  metals.  The  laws  of  the  United 
States,  for  example,  enact  that  a  certain  coin,  or  planchet, 
of  gold,  nine-tenths  fine,  and  weighing  2;5t8q  grains,  shall 
be  called  a  dollar.  That  is  all  the  government  does,  all  it 
ought  to  do.  It  compels  no  one  to  receive  the  dollar  for 
any  thing,  unless  he  has  agreed  to  do  so,  any  more  than  it 
compels  him  to  receive  hats  or  boots,  wheat  or  cotton.    But, 


CHAP.  IX.]  STANDARD   OP  VALUE.  171 

the  government  having  provided  the  coin,  —  that  is,  having 
certified  to  its  weight  and  fineness, — the  people,  of  their  own 
choice,  make  use  of  it  to  measure  every  other  thing.  If 
they  buy  merchandise  or  land  or  cattle,  they  agree  to  take 
so  many  of  these  dollars  in  payment.  They  might  say,  so 
many  oxen  or  horses,  or  any  thing  else ;  but  they  prefer 
dollars,  merely  because  they  have  the  most  convenient  form 
of  value,  and  are  universally  acceptable.  As  society  in 
general  adopts  this  way  of  determining  the  worth  of  prop- 
erty, the  dollar,  not  by  law,  but  by  the  voluntary  preference 
of  the  people,  becomes  the  measure,  or  standard,  of  value, 
in  all  transactions. 

So  far  as  indebtedness  between  individuals  is  concerned, 
the  government  makes  the  dollar  lawful  tender ;  that  is,  if 
an  individual  has  a  just  claim  for  a  given  number  of  dollars, 
the  government  enacts  that  the  same  number  of  dollars  shall 
discharge  the  debt. 

True  it  is,  that  every  object,  having  value  and  used  in 
exchange,  is  really,  in  so  far,  and  for  the  time,  a  measure 
of  value  ;  but  that  which  has  been  selected  by  mankind  as 
the  best  adapted  for  a  universal  equivalent,  and  actually  so 
used,  is  emphatically,  and  for  all  purposes,  the  measure 
or  standard. 

Some  writers  have  insisted  that  people  should  not  be 
compelled  to  pay  so  many  dollars  in  coin ;  then  they  should 
not  promise  dollars  merely,  but  any  thing  else. 

The  establishment  of  such  a  standard  is  no  wrong  to  the 
people ;  for  it  can  easily  be  seen  that  payments  in  any  other 
specific  product  would  be  more  likely  to  involve  hardships 
e.g.,  an  obligation  to  pay  wheat  or  potatoes  or  cotton  af 
any  certain  time,  would  bring  infinitely  more  chances  of 
distress  resulting  from  a  failure  of  the  crop  in  that  particu- 
lar article. 

Neither  is  it  an  arbitrary  act  on  the  part  of  the  govern- 
ment. It  is  purely  a  favor,  an  accommodation,  provided  at 
great  cost,  for  the  benefit  of  the  public.     All  objections,  on 


172  EXCHANGE.  [BOOK   III. 

the  ground  that  it  is  arbitrary  and  unjust  to  compel  men 
to  discharge  indebtedness  in  coin,  are  idle  and  absurd. 
Those  who  make  them  are  bound  to  show,  what  has  never 
yet  been  found,  a  better  standard. 

During  the  suspension  of  the  Bank  of  England  from 
179G  to  1819,  it  was  gravely  argued,  by  some  gentlemen  in 
the  House  of  Commons,  that  "  the  pound  sterling  was  really 
an  abstraction  ;  "  but  the  return  to  specie  payments  in  the 
latter  year  showed  that  the  pound  sterling  was  really  a  con- 
cretion of  113.001  grains  of  fine  gold,  by  which  all  debts, 
public  and  private,  were  to  be  discharged. 

A  mixed  currency,  wherever  it  exists,  forms  the  standard 
of  value  for  the  community,  just  as  certainly  as  the  precious 
metals  where  they  alone  are  used.  That  of  the  United 
States,  to  be  sure,  is  not  a  legal  tender,*  like  the  Bank-of- 
England  notes ;  but,  as  no  other  currency  exists,  as  there 
is  no  other  money  of  importance  in  circulation,  it  must  be 
employed  for  all  purposes,  and  so,  to  all  practical  intents,  is 
the  standard  of  value. 

We  are  now  prepared  to  inquire  how  a  mixed  currency 
performs  this  function. 

We  have  seen  its  fluctuations,  certain  to  occur,  yet  wholly 
uncertain  as  to  direction  and  degree.  These  fluctuations 
make  it  plain  enough,  that,  as  a  standard  of  value,  a  mixed 
currency  must  work  injustice  and  mischief,  both  in  expan- 
sion and  contraction.  Destructive  as  are  the  great  occa- 
sional convulsions  of  trade,  it  is  doubtful  whether  they 
produce  as  extensive  evil  as  those  minor  disturbances  which 
come  every  year,  and,  indeed,  affect  the  entire  transactions 
of  the  people.  Arithmetic  will  hardly  suffice  to  compute 
losses  on  a  scale  of  such  magnitude.  Every  bargain,  in  an 
industry  of  three  thousand  millions  a  year,  is  more  or  less 
vitiated  by  a  harsh  and  unnatural  change,  one  way  or  the 
other,  of  the  currency. 

*  This  whole  discussion  supposes  this  currency  in  the  state  it  occupied 
before  the  war  of  the  Rebellion. 


CHAP.  IX.]  STANDARD   OP  VALUE.  173 

In  the  mildest  form  of  such  a  currency,  fluctuations  to 
the  extent  of  fifteen  per  cent  are  shown  by  our  diagrams 
to  be  as  commonplace  as  yearly  occurrence  can  make  them. 
If  the  yardstick  were  stretched  to  42  inches  one  year,  and 
shrunk  to  30  another,  or  both  should  happen  the  same 
year,  without  any  possibility  of  anticipating  the  change,  or 
any  public  proclamation  of  it,  that  fact  would  influence  man- 
ufactures, and  every  branch  of  production,  greatly ;  would 
not  only  cause  injustice  to  individuals,  buyers  and  sellers, 
but  would  have  a  bearing  on  the  trade  and  public  prosperity ; 
would  influence  investments,  and  affect  labor  no  less. 

Yet,  under  the  fluctuations  of  a  mixed  currency,  buyers 
and  sellers  of  all  classes  experience  injustice  as  great  and 
as  distressing  as  would  result  to  the  dealers  in  cloth  from 
the  falsification  of  the  yardstick.  If  the  great  changes  are 
destructive,  the  more  ordinary  are  constantly  embarrassing. 
Arbitrary  interference  with  currency  produces  mischief  and 
injustice,  just  so  far  as  it  operates  at  all.  The  quantity 
cannot  be  artificially  increased  or  diminished,  but  some  one 
is  wronged  ;  either  he  who  relied  on  obtaining  it  at  ordinary 
rates  to  discharge  his  obligation,  or  he  who  trusted  to  get 
quite  another  value  from  what  he  does. 

Enormous  transfers  of  property  take  place  under  this  sys- 
tem, without  any  desert  in  the  party  who  receives  what  is 
another's,  and  without  any  fault  in  the  party  who  gives  up 
what  is  his  own.  This  it  is  which  makes  business  a  very 
complicated  kind  of  gambling.  This  it  is  which  tosses  up 
or  pulls  down  prices  enough  to  ruin  the  merchant  and  man- 
ufacturer or  make  their  fortunes,  while  their  goods  are  in 
their  hands,  before  they  can  be  turned. 

Not  to  insist  here  that  injustice  between  the  parts  is  in- 
jury to  the  whole,  or  to  dwell  on  the  claims  of  public  morals, 
if  we  turn  to  that  large  class  especially  entitled  to  social 
and  governmental  care  and  consideration,  who  put  out 
money  at  interest  or  invest  in  stocks,  or  rely  on  permanent 
salaries  or  wages  for  support,  we  shall  here  find  a  mischief 


174  EXCHANGE.  [BOOK   in. 

without  relief,  a  wrong  without  a  remedy.  These  receive 
no  appreciable  benefit  from  any  of  the  changes  of  a  mixed 
currency,  but  all  its  evils  fall  heavy  and  unbroken  upon 
them. 

This  matter  is  so  near  our  daily  observation  as  scarcely 
to  need  enforcement,  so  plain  as  to  be  scarcely  susceptible 
of  illustration.  The  sad  effects  of  such  a  currency  are 
strongly  set  forth  in  the  following  extract  from  an  article  in 
the  "  North- American  Review "  of  January,  1840,  under- 
stood to  have  been  written  by  one  who  has  been  long  and 
intimately  connected  with  the  banking  institutions  of  Mas- 
sachusetts :  — 

"  It  is  the  standing  reproach  of  our  commercial  life,  that  it  in- 
volves more  intellectual  suffering  from  violent  fluctuations  than  any 
other  pursuit.  With  all  our  recuperative  powers,  there  is  a  vast 
waste  of  life  amongst  us  as  a  people,  growing  out  of  our  financial 
disasters.  Witness  the  fact,  stated  to  be  derived  from  accurate 
statistics,  that,  among  one  hundred  merchants  or  traders,  not  over 
three  ever  acquire  independence.  Add  to  this  the  other  fact,  also 
deduced  from  trustworthy  records,  that  commercial  and  financial 
revolutions  produce  excessive  mortality  amongst  business  men  in 
maritime  cities.  Here  we  have  the  cause  and  effect.  Meanwhile 
we  have  statistical  data  of  the  still  severer  calamities  to  widows 
and  orphans." 

PRICE. 

Currency  performs  the  function  of  a  standard  of  value, 
by  fixing  the  price  of  commodities.  In  order  to  examine 
the  subject  intelligently,  we  shall  be  called  first  to  notice  the 
import  of  the  term  "  price."  It  expresses  the  relation  of  all 
objects  to  a  common  measure  or  standard.  For  example, 
if  the  standard  were  sheep,  it  might  be  said  that  an  ox  was 
worth  twenty  sheep ;  the  price  of  the  ox  would  be  twenty 
sheep.  If  the  standard  were  dollars, — that  is,  certain  well- 
known  coins,  —  we  should  say  that  the  ox  was  worth  twenty 
dollars,  and  that  would  be  its  price.     And  it  would  be  the 


CHAP.  IX.]  STANDARD   OP  VALUE.  175 

same,  if  by  dollars  we  meant  only  certain  pieces  of  paper, 
promising  to  pay  these  coins. 

Price  and  value  are  often  confounded  together.  The  dif- 
ference is  this :  value  is  the  relation  which  all  objects  have 
to  each  other  in  exchange ;  while  price  is  the  relation  of  all 
commodities  to  one  special  object,  viz.  money  or  currency. 

Price  may  be  increased  without  increasing  value.  For 
example  :  the  price  of  flour  in  1859  was  $5  ;  in  1864  it  was 
$10.  Yet  a  barrel  of  flour  had  no  more  value  at  the  latter 
date  than  before  the  war,  because  it  would  command  no 
more  of  other  value ;  that  is,  of  broadcloth  or  tea,  or 
other  commodity. 

This  discrepancy  is  found,  not  only  at  different  periods  in 
the  same  country,  but  between  different  countries  at  the 
same  time.  If  all  commodities  in  all  countries  were  always 
measured  by  the  same  standard,  price  and  value  would  be 
synonymous ;  but  if,  as  often  happens,  a  standard  is  adopted 
in  one  country  less  valuable  than  that  of  others,  commodities 
will  adapt  themselves  to  the  currency,  and  the  agreement 
between  price  and  value  is  destroyed  in  the  act  of  vitiating 
the  standard. 

"  The  value  of  a  thing  is  its  purchasing  power :  the  price  of 
any  thing  is  its  power  to  command  gold,  silver,  or  that  which  con- 
stitutes the  currency  of  the  country.  Value  may  be  expressed  in 
any  commodity  whatever :  price  is  expressed  in  one  commodity 
only."  —  Bascom,  p.  22. 

If  an  inventory  of  all  the  property  belonging  to  the  people 
of  the  United  States  had  been  made  in  1864,  at  the  then 
prevailing  prices,  it  would  have  amounted  to  nearly  double 
what  it  was  two  years  before,  even  though  the  quantity  of 
all  commodities  had  been  identically  the  same.  This,  be- 
cause prices  were  measured  not  by  gold,  but  by  credit,  or 
the  promises  of  government  and  the  banks ;  but  the  value 
of  all  these  commodities  in  the  commerce  of  the  world,  and 
among  themselves,  was  no  greater  than  two  years  before. 


176  EXCHANGE.  [BOOK   III. 

The  difference  between  price  and  value  was  also  strikingly 
exhibited  in  the  history  of  the  Confederate  States  during 
the  Rebellion.  In  both  sections  of  the  country,  the  varia- 
tions in  1864  were  so  great  as  to  attract  universal  attention  ; 
but  they  always  exist,  in  greater  or  less  degree,  under  a 
mixed-currency  system,  because  the  standard  of  value,  ex- 
cept at  short  intervals,  is  not  sound.  The  difference  begins 
to  manifest  itself  whenever  the  currency  is  inflated  beyond 
its  natural  volume,  and  increases  with  that  inflation. 

We  here  present  a  table,  showing  the  historical  variations 
in  certain  commodities,  for  a  series  of  twenty-six  years, 
under  the  undisturbed  operation  of  a  mixed-currency  sys- 
tem. 

We  have  selected,  for  the  purpose,  the  period  1834-1859, 
inclusive,  because  it  is  the  only  one  for  which  we  have  cor- 
rect data,  —  that  is,  well-authenticated  returns  ;  and  for  the 
additional  reason  that  the  period  was  one  of  general  peace, 
at  home  and  abroad. 

The  articles  we  have  selected  for  this  comparison  are  the 
most  common  in  use,  whose  prices  are  best  known  and 
least  liable  to  variations,  except  from  changes  in  the  value 
of  the  currency,  and  therefore,  it  is  supposed,  most  proper 
for  our  illustration. 


CHAP.  IX.] 


STANDARD   OF  VALUE. 


177 


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Banik  Currency  per  Cr>//it(> 


CHAP.  IX.]  STANDARD   OP  VALUE.  179 

These  facts  are  shown  geometrically  in  Diagram  No.  2. 

This  Diagram  may  require  some  explanation.  The  upper 
line  represents  the  variations  in  the  prices  of  the  ten  com- 
modities chosen,  for  each  year,  from  1834  to  1859  inclusive, 
as  already  given  in  the  tables.  The  lower  line  repre- 
sents the  bank  currency,  per  capita,  for  the  corresponding 
years. 

Several  important  facts  appear  in  this  figure.  The  first 
to  be  noticed  is  the  remarkable  correspondence  between  the 
first  and  second  lines,  rising  and  falling  together ;  proving 
most  conclusively,  by  their  agreement  through  so  long  a 
series  of  years,  that  prices  depend  on  the  quantity  of  cur- 
rency in  circulation. 

The  average  currency,  per  capita,  from  1834  to  1859, 

26  years,  was $11.99 

Average  prices  during  that  time 20.80 

Highest  amount  of  currency  (1837) 17.61 

Highest  prices  (1836) 29.46 

Next  highest  prices  (1837) 28.40 

Difference  between  lowest  and  highest  currency  .     .  185  per  cent. 
Difference  between  lowest  and  highest  prices  .     .     .121  per  cent. 

It  will  be  observed,  that  the  difference  in  prices  is  not  as 
great, per  cent,  as  the  difference  in  currency  per  capita.  This 
is  in  accordance  with  what  has  been  already  laid  down  in 
regard  to  the  unnatural  extension  of  credits,  caused  by  the 
expansion  of  the  currency.  These,  of  course,  require  a 
larger  amount  for  their  discharge.  The  currency  has  rela- 
tion to  credits  as  well  as  commodities. 

The  correspondence  exhibited,  in  the  foregoing  tables  and 
diagram,  between  the  quantity  of  currency  and  the  rate  of 
prices,  shows  conclusively  and  impressively  the  effects  of  a 
mixed  currency  as  a  standard  of  value  ;  viz.,  that  as  it 
expands  or  contracts  from  arbitrary  but  resistless  causes,  so 
prices  are  elevated  or  depressed,  —  variations  which  are  often 
sudden  and  excessive. 


180  EXCHANGE.  [BOOK   III. 

In  1857,  the  highest  point  of  expansion  was  attained, 
amounting  to  103  per  cent  over  1849;  and  the  price  of 
commodities  had  advanced  69  per  cent. 

The  list  (see  United-States  Financial  Report,  1863)  from 
which  the  foregoing  table  of  ten  items  was  selected  contains 
seventy  articles,  the  prices  of  which  correspond  essentially 
to  those  we  have  presented. 

Two  important  articles  are  omitted,  viz.  cotton  and  flour, 
from  the  list  here  given,  because  their  prices  are  more 
affected  by  the  foreign  market  than  by  our  own,  and  may  be 
noticed  hereafter. 

After  making  due  allowance  for  those  fluctuations  which 
arise  from  supply  and  demand  and  from  accidents,  the  evi- 
dence is  most  conclusive  that  the  quantity  of  currency  in 
existence  does  determine,  essentially,  the  prices  of  commod- 
ities ;  and  that,  as  a  mixed  currency  must  fluctuate  greatly 
in  amount  from  its  inherent  properties,  it  cannot  perform 
satisfactorily  its  function  as  a  standard  of  value. 

The  foregoing  calculations,  it  will  be  observed,  are  made 
on  the  currency  as  estimated  per  capita.  This  is  regarded 
as  the  most  correct  mode  ;  since,  as  population  increases,  it 
is  presumed  that  the  industry  and  trade  of  the  country  is 
increased  proportionally,  and,  if  so,  a  larger  amount  of  cur- 
rency will  be  needed.  If  the  increase  of  currency  is  greater 
than  the  increase  of  population,  the  per-capita  calculation 
will  show  it. 

It  may  be  said,  at  this  point,  that  the  same  effect  on  prices 
would  be  produced  by  an  equal  expansion  or  contraction  of 
a  value  currency.  Granted ;  but  such  rapid  and  violent 
changes  could  not  take  place.  Specie  cannot  be  increased 
like  paper.  It  costs  labor,  like  corn  or  cotton,  and  is  sub- 
ject to  the  same  laws  of  supply  and  demand.  It  can  only 
be  brought  in  because  it  is  wanted,  —  because  some  one 
wishes  to  give  its  price  for  it ;  but  this  desire  to  bring  it  in 
decreases  regularly  with  the  amount  obtained.  The  more  it 
is  introduced  into  the  country,  the  less,  by  the  natural  laws 


CHAP.  IX.]  STANDARD   OF  VALUE.  181 

of  trade,  is  it  worth ;  the  weaker  the  inducement  to  send 
for  it.  If,  by  any  chance,  it  comes  in  till  there  is  a  redun- 
dancy, the  prices  of  other  things  are  raised,  its  own  value 
is  therefore  lowered,  and  it  flows  off  till  the  equilibrium  is 
restored.  Such  an  exportation  would  cause  no  more  anxiety 
or  alarm  than  the  shipment  of  an  equal  value  of  flour. 
With  a  mixed  currency,  there  is  the  embarrassing  fact,  that 
it  cannot  be  exported.  The  foreign  balances  must  be  taken 
out  of  the  specie  basis.  We  have  seen  the  course  of  con- 
traction that  must  ensue. 

To  observe  further  the  operation  of  mixed  currency  as  a 
standard  of  value,  and  its  effect,  not  on  trade  generally,  but 
on  ordinary  production,  let  us  take  the  case  of  the  wheat- 
grower. 

A  farmer,  we  will  suppose,  has  a  crop  of  one  thousand 
bushels  of  wheat,  which  he  sells  at  ninety  cents  per  bushel, 
which  is  thirty  cents  more  than  it  would  bring  under  a 
real-money  system.  Now,  the  question  —  which  is  of  great 
concern  to  him,  and,  if  to  him,  to  all  producers  of  all  com- 
modities— is,  whether  he  gains  or  loses  by  this  transaction. 

Take  a  single  bushel.  He  gets  ninety  cents  for  it.  With 
that,  he  purchases  six  pounds  of  sugar  at  fifteen  cents.  This, 
he  observes,  is  five  cents  more  than  he  used  to  pay  for  sugar, 
when  his  wheat  was  but  sixty  cents.  He  perceives,  that, 
having  paid  five  cents  per  pound  extra  on  the  sugar,  he  has 
just  lost  all  the  additional  price  of  thirty  cents  on  the 
bushel  of  wheat. 

On  further  reflection,  he  discovers  that  he  is  not  so  well 
off  as  when  he  sold  his  wheat  at  the  money  price  of  sixty 
cents,  because  it  cost  him  more  to  raise  the  wheat.*  He  had 
to  pay  more  for  the  labor  employed  in  its  production, — 
equal,  say,  to  five  cents  per  bushel,  which,  on  one  thousand 

*  It  may  be  objected  to  this  view  of  the  case,  that,  the  wheat  having 
risen  in  price,  it  would  require  less  in  quantity  to  pay  for  the  labor,  so  that 
the  farmer's  crop  would  actually  cost  him  no  more  than  before  the  rise  in 
wages. 


182  exchange.  [book  m. 

bushels,  amounts  to  fifty  dollars ;  and  that  sum  he  will 
actually  lose,  although  selling  his  wheat  at  fifty  per  cent 
advance  in  price. 

This  transaction  of  selling  one  bushel  of  wheat  for  six 
pounds  of  sugar  fairly  represents  the  result  of  selling  the 
whole  crop,  and  investing  the  proceeds  in  other  kinds  of 
property ;  because  all  commodities  have  alike  risen  in  price. 

But  it  may  be  asked,  Suppose  the  farmer  paid  a  debt  of 
nine  hundred  dollars  with  the  money  he  obtained  for  his 
wheat,  has  he  not  gained  by  the  rise  in  price  ?  If  he  con- 
tracted the  debt  before  the  rise,  he  certainly  has  made  a 
large  gain  in  the  payment  of  the  debt ;  for,  as  things  were 
when  the  debt  was  contracted,  it  would  have  taken  fifteen 
hundred  bushels  of  wheat  at  sixty  cents  to  pay  nine  hun- 
dred dollars.  Here  he  has  gained  three  hundred  dollars,  or 
saved  five  hundred  bushels  of  wheat,  less,  be  it  recollected, 
the  extra  expense  of  fifty  dollars  in  the  raising  of  the  crop. 
His  net  gain  is  two  hundred  and  fifty  dollars. 

But  how  is  it  with  his  creditor  ?  He  finds,  on  re-invest- 
ing the  money  in  cattle,  horses,  sheep,  ploughs,  wagons,  and 
the  like,  that  the  nine  hundred  dollars  will  purchase  but 
two-thirds  as  much  as  when  he  loaned  the  money.  He  has 
lost  three  hundred  dollars.  The  farmer  promised  to  pay 
"  dollars ;"  but  he  did  not,  he  only  paid  the  promise  of  dol- 
lars ;  and  these  promises  were  so  easily  made,  became  so 
plenty,  proved  so  cheap,  that  they  were  really  worth  but 
two-thirds  of  what  they  professed  to  be.  This  he  found 
when  he  came  to  use  them  in  buying  articles  for  his 
family. 

But,  to  carry  the  inquiry  entirely  through,  we  must  ask 
who  gained  the  fifty  dollars  the  farmer,  in  the  case  sup- 
posed, lost  by  the  extra  cost  of  labor  ?  The  laborer  ?  He 
was  certainly  paid  an  extra  price ;  but  he  gained  no  value 
by  it,  because  all  the  commodities  he  purchased  with  the 
proceeds  of  his  labor  were  raised  more  than  his  wages,  so 
that  he  lost  more  than  he  gained.     The  rise  in  price  has,  in 


CHAP.  IX.]  STANDARD   OF  VALUE.  183 

fact,  benefited  nobody  but  the  debtor,  and  him  only  at  the 
expense  of  the  creditor,  who  was  virtually  swindled  out  of  a 
part  of  his  property.  This  is  the  final  result,  when  care- 
fully analyzed,  of  an  expansion  of  prices  through  the  expan- 
sion of  the  currency. 

Every  advance  in  price,  occasioned  by  the  depreciation  of 
the  currency,  is  sure  to  be  followed  ultimately  by  a  return 
to  the  specie  standard.  Suppose  that,  during  an  expansion, 
a  farmer,  encouraged  by  the  high  price  of  wheat,  purchases 
land  to  the  amount  of  nine  hundred  dollars,  in  the  expecta- 
tion that  he  can  pay  for  it  with  one  thousand  bushels  of 
wheat,  at  ninety  cents  per  bushel.  A  contraction  takes 
place,  the  price  of  wheat  goes  down  to  sixty  cents,  and,  to 
pay  his  note  of  nine  hundred  dollars,  he  must  sell  fifteen 
hundred  bushels  of  wheat.  He  has  lost  five  hundred  bush- 
els, just  what  the  debtor,  in  the  other  case  supposed,  gained, 
less  fifty  dollars  which  he  will  now  save  in  the  labor  cost  of 
his  wheat. 

We  here  see  that  the  effect  of  raising  prices  without 
increasing  values  is  to  vitiate  all  existing  contracts  to  pay 
money.  If  the  farmer,  in  the  case  supposed,  had  promised 
to  pay  so  many  bushels  of  wheat,  all  would  have  been  well ; 
but  he  promised  to  pay  dollars ;  and,  when  the  price  of 
wheat  was  measured  by  dollars  under  a  contraction,  it  made 
the  difference  stated. 

Much  misapprehension  arises  from  confounding  special 
and  general  prices,  or  the  price  of  an  individual  article,  as 
distinguished  from  that  of  the  great  mass  of  commodities. 
"We  are  told  that  a  variety  of  considerations  enter  into  and 
affect  prices ;  viz.,  demand  and  supply,  cost  of  production, 
&c,  &c.  All  this  is  perfectly  true  of  an  individual  article, 
whose  price  may  and  does  vary  from  time  to  time,  as  com- 
pared with  other  commodities,  under  the  operation  of  these 
causes.  One  article  may  be  very  high,  while  all  others  are 
low,  or  the  reverse ;  but  this  does  not  tend  to  disprove  the 
principle,  that  general  prices  are  determined  by  the  quantity 


184  EXCHANGE.  [BOOK   III. 

of  the  currency.  Wo  can  take  into  view  all  the  circum- 
stances  which  act  upon  a  particular  commodity,  and  by 
which  it  is  made,  for  the  time  being,  an  exception  to  the 
general  rule,  without  disturbing  the  principle  laid  down,  or 
casting  any  doubt  upon  its  operation. 


CHAPTER  X. 

EFFECTS  OF  A  MIXED   CURRENCY. 

We  stated  two  principal  questions  in  regard  to  mixed  cur- 
rency :  — 

1st,  Does  it  perform  satisfactorily  the  functions  of  money  ? 

2d,  What,  and  how  great,  are  its  effects  on  public  inter- 
ests, beyond  the  proper  effects  of  value  currency  ? 

In  the  four  chapters  immediately  preceding,  we  have  dis- 
cussed the  first  question,  with  a  result  unfavorable  to  such 
a  currency.  We  now  approach  the  second  of  these  ques- 
tions,— What  are  the  effects  of  mixed  currency? 

I.  A  mixed  currency  endangers  domestic  tranquillity. 
This  is  a  proposition  which  we  shall  consider  solely  with 
reference  to  society  in  the  United  States. 

That  mixed-currency  banks  can  never,  in  fact,  fulfil  their 
agreements,  if  called  on  to  do  so,  we  have  already  shown ; 
and,  since  they  are  ever  liable  to  such  calls,  there  is  con- 
stant danger  from  this  source.  At  any  moment,  there  may 
reasonably  arise,  through  this  cause,  such  general  dissatis- 
faction among  the  lower  classes  as  shall  tend  to  extensive 
disturbances  of  the  public  peace. 

This  danger  is  greatly  enhanced  by  the  fact,  that,  within 
the  last  forty  years,  there  has  been  created  a  vast  system  of 
savings  institutions,  which  receive  the  money  individuals 
are  disposed  to  deposit  with  them,  and  promise  to  return  it 
on  demand,  or  at  short  notice  ;  generally  on  demand. 


N 


Bank  1/iaHliMes  in    Massachusetts  /SO'O 
nfif/    />n.\is  of  Specie 


Deposits  in  Savings  Banks 
/;  \fiuiom 

Deposits 

/// 

inrrrnrr   /Jrtnftx 

30  MiUiens 

Circulation 
of 
Curren  ()-  Banks 
85  Millions 

Specie 
O'i  Wttions. 

Liabilities  WO  Mittens  Specie  &i  Millions 

Ezetss  .9,74  Mittens 


CHAP.  X.]     EFFECTS  OF  A  MIXED  CURRENCY.  185 

Now,  should  any  cause  operate  by  which  confidence  in  the 
solvency  of  the  general  banking  system  of  the  country  is 
shaken,  it  will  naturally,  nay,  inevitably  happen  that  a  run 
will  be  made  on  the  savings  institutions.  These  can  only 
meet  their  engagements  by  drawing  on  the  banks.  But,  if 
these  have  all  their  resources  strained  to  meet  the  ordinary 
wants  of  the  business  community,  how  can  the  drafts  of  the 
saving  banks  be  met  ?  How  can  currency  be  supplied  for 
this  extraordinary  demand  ?  This  question  can  only  be 
intelligently  answered  by  reference  to  the  condition  of  both 
these  kinds  of  institutions. 

We  will,  for  this  purpose,  take  the  currency  of  Massachu- 
setts as  it  stood  in  1860  :  — 

The  savings  banks  had  on  deposit $45,000,000 

r™  .     ,     ,    -,  (deposits 30,000,000 

I  he  currency  banks  had  ■{      r 

'  (circulation 25,000,000 

Total $100,000,000 

The  currency  banks  had  specie 6,500,000 

Difference $93,500,000 

This  is  exhibited  in  Currency  Diagram  No.  3. 

Here,  then,  are  legal  immediate  demands,  upon  the  cur- 
rency banks,  of  fifty-five  millions  ;  and,  upon  the  savings 
banks,  of  forty-five  millions.  Suppose  there  should  arise 
some  dissatisfaction,  or  public  uneasiness,  which  should 
prompt  to  a  run  on  both  these  kinds  of  banks.  It  certainly 
is  possible,  not  to  say  probable.  Suppose  that  the  institu- 
tions for  savings  are  called  on  for  only  one-fourth  of  their 
deposits.  They  must  look  to  the  banks  for  eleven  millions 
of  currency  at  once.  The  banks  begin  to  pay  out  their  bills  ; 
but  the  specie  is  at  once  demanded,  and  of  that  they  have 
but  six  and  one-half  millions  against  their  own  immediate 
liabilities  of  fifty-five  millions.  They  could  not  stand  a  run 
of  two  days,  because  their  own  deposits  would  be  drawn  in 
specie  just  as  soon  as  the  real  state  of  affairs  was  discov- 


186  EXCHANGE.  [BOOK   in. 

ered.  The  banks  must,  therefore,  suspend  at  once.  What 
would  naturally  follow  in  a  time  of  great  public  excitement, 
when  the  interests  of  some  party  or  faction  required  a  gen- 
eral breaking-up  of  society  ? 

It  is  not  enough  to  evade  this,  by  saying  that  such  an 
event  has  never  happened,  though  the  banks  have  several 
times  suspended.  That  is  quite  true ;  yet  it  does  not  follow 
that  it  never  will.  Previous  suspensions  have  originated  in 
commercial  causes.  Suppose,  on  the  other  hand,  a  run  were 
made  on  account  of  political  or  social  disturbances ;  that 
the  laboring  class — factory  operatives,  railroad  gangs,  the 
servants  in  our  families  —  were  incited  to  demand  their  de- 
posits in  the  savings  institutions.  Could  they  not  prostrate 
the  entire  currency  in  twenty-four  hours,  by  merely  demand- 
ing their  just  dues  ? 

Whether  such  a  probability  is  remote  or  uncertain,  it 
does  not  seem  wise  to  maintain  a  system  which  can,  by  any 
possibility,  produce  results  so  disastrous ;  especially,  if  there 
are  no  advantages  whatever  in  such  a  state  of  things. 

Premonitory  symptoms  have  not  been  wanting  of  such  a 
catastrophe  as,  under  aggravating  circumstances,  might  over- 
throw all  the  moneyed  institutions  of  the  country,  and  even 
endanger  the  government  itself. 

We  are  not  the  homogeneous  people  we  were.  We 
have  elements  of  weakness  and  discord  that  did  not  exist  in 
earlier  times.  We  have,  especially,  a  large  foreign  popula- 
tion, as  much  interested  as  any  other  in  the  funds  of  our 
savings  institutions,  which  might,  at  any  moment,  if  pro- 
voked to  do  so,  throw  our  whole  banking  system  into  sus- 
pension. 

It  cannot  be  wise  to  ignore  these  palpable  facts,  or  the 
consequences  that,  in  the  natural  course  of  things,  are  likely 
to  come  out  of  them.  The  danger  can  only  be  removed  by 
a  change  of  system. 

II.  A  mixed  currency  has  a  demoralizing  influence  upon 
a  community,  industrially  and  socially. 


CHAP.  X.]     EFFECTS  OF  A  MIXED  CURRENCY.  187 

If  what  has  been  said  in  regard  to  this  kind  of  currency 
is  correct,  such  an  influence  cannot  for  a  moment  be  ques- 
tioned. If  it  excites  to  wild  and  extravagant  speculation  at 
one  time,  and  plunges  its  victims  into  bankruptcy  and  ruin 
without  fault  at  another  ;  if  it  excites  hopes  and  expecta- 
tions which  must  necessarily  come  to  disappointment  and 
distress  ;  if  it  increases  to  an  enormous  extent  the  natural 
risks  of  trade,  and  exposes  all  business  operations  tb  an  in- 
calculable hazard,  —  then  the  mercantile  character  and  the 
general  tone  of  morals  cannot  but  be  unfavorably  affected. 

The  influences  that  hold  men  to  strict  probity,  steady 
industry,  and  a  strong  sense  of  honor,  are  feeble  enough, 
and  have  enemies  enough,  without  the  discouragements  and 
embarrassments  arising  from  such  causes  as  we  have  de- 
scribed. 

Society  should  place  its  premium  on  virtue,  and  not  on 
vice. 

Those  who  have  witnessed  the  terrible  convulsions  occur- 
ring in  the  United  States  within  forty  years,  know  but  too 
well  how  sad  has  been  the  effect  on  individual  and  national 
character. 

It  is  unnecessary  to  dwell  upon  a  point  so  evident,  and  so 
generally  admitted  by  all  who  understand  the  matter ;  yet 
its  recognition  could  not  properly  be  omitted  in  the  exami- 
nation of  the  mixed-currency  system. 

III.  A  mixed  currency  endangers  the  national  safety  in 
war. 

With  the  existing  ideas  and  institutions  of  society,  and 
while  no  preparations  are  made  in  time  of  peace  to  prevent 
the  recurrence  of  war,  but  every  effort  to  meet  it,  and  thus, 
of  course,  to  strengthen  and  perpetuate  the  war  system,  it 
becomes  a  matter  of  great  interest  to  inquire  as  to  the  effects 
of  a  mixed  currency  on  the  safety  of  a  nation  in  the  event 
of  war. 

We  have  already  shown  that  a  mixed  currency  is  greatly 
affected  by  a  demand  for  specie  to  send  abroad.     Hence,  as 


188  exchange.  [book  in. 

war  must  always  call  for  an  extraordinary  importation  of 
foreign  merchandise  and  materials,  and  as  such  extraordi 
nary  importation  must  require  the  shipment  of  specie,  a 
contraction  and  panic,  or  speedy  suspension,  must  be  the 
certain  consequence. 

Again,  since  so  great  a  part  of  a  mixed  currency  usually 
consists  of  credit,  and  since  credit  rests  wholly  on  confi- 
dence, Uny  thing  which  impairs  the  latter  compels  a  con- 
traction or  withdrawal  of  the  currency. 

Now,  war  generally,  we  may  say  uniformly,  does  this  :  for 
how  long  it  may  last,  how  great  may  be  the  demand  for 
money,  how  large  the  destruction  of  capital,  and  what  the 
final  issue,  must  be  a  matter  of  doubt ;  and  therefore  its 
occurrence  always  impairs  public  confidence  to  a  greater  or 
less  extent. 

These  two  causes,  then,  are  at  once  brought  to  bear  upon 
a  mixed  currency  with  fatal  effect.  The  result  has  always 
been,  and  always  must  be,  that,  under  such  circumstances, 
the  mixed-currency  banks  suspend ;  because  their  circula- 
tion cannot  be  withdrawn  at  the  time  without  producing 
universal  bankruptcy,  annihilating  their  own  capital,  and 
stopping  the  wheels  of  government. 

It  was  so  in  England  during  the  war  with  Napoleon ;  in 
the  United  States  during  the  war  of  1812,  and  in  the  time 
of  the  great  Rebellion. 

What  comes  in  consequence  of  all  this  ?  The  nation  is 
obliged  to  carry  on  its  vast  pecuniary  operations  with  a 
broken-down  currency.  This,  of  course,  involves  the  finan- 
ces in  great  embarrassment,  vastly  increases  the  public 
expenditures  and  the  national  indebtedness.  The  whole 
financial  system  of  the  country  is  crippled,  and  becomes  as 
weak  as  its  currency. 

No  better  illustration  of  the  truth  of  this  statement  was 
perhaps  ever  afforded  than  that  found  in  the  experience  of 
the  United  States  during  its  great  struggle. 

The  country  was  suddenly  involved  in  a  stupendous  war, 


CHAP.  X.]  EFFECTS   OF   A   MIXED   CURRENCY.  189 

— technically,  only  a  civil  war,  but,  practically,  a  great  inter- 
national struggle,  so  vast  were  its  dimensions,  so  strictly 
was  it  sectional ;  a  conflict  between  two  different  civiliza- 
tions, on  different  though  contiguous  portions  of  the  Amer- 
ican continent. 

At  the  commencement  of  the  struggle,  the  currency,  as 
we  have  before  said,  amounted,  circulation  and  deposits,  to 
four  hundred  and  sixty  millions  against  eighty-three  mil- 
lions of  specie.  Upon  the  mere  threat  of  secession,  so 
greatly  did  it  impair  public  confidence  that  the  banks  at  the 
South  began  to  suspend ;  and  their  example  was  followed 
until  most  of  the  Western,  and  many  of  the  Eastern,  were 
in  a  state  of  suspension.  After  the  first  shock  had  passed 
by,  most  of  the  banks  in  the  loyal  States  resumed  specie 
payments  ;  but  the  large  demands  of  the  government,  in  the 
coiirse  of  about  a  twelvemonth,  compelled  a  universal  sus- 
pension by  both  the  national  treasury  and  the  banks,  and 
the  whole  country  was  thrown  upon  an  irredeemable  paper 
currency. 

All  this  happened,  not  because  the  currency  was  so  redun- 
dant, but  because  it  was  so  unsound.  Had  it  been  based  in 
full  on  specie,  this  disastrous  result  would  have  been  avoided. 

Now,  if  it  ever  could  be  supposed  politic  or  safe  to  send 
away  the  real  money  of  a  country  and  live  on  credit,  if  this 
could  ever  be  regarded  as  good  economy  or  statesmanship, 
when  should  it  be  done  ?  When  the  nation  is  in  prosperity, 
and  does  not  need  this  little  gain,  or  when  it  is  strained  to 
agony  in  the  struggles  of  war  ?  If  this  is  really  a  resource, 
should  it  be  spent  in  time  of  peace  for  extra  imports  of 
wine  and  silks,  or  reserved  to  the  great  trial  of  life  for  the 
people,  when  it  may  bring  back  the  munitions  of  war  ? 

If  we  were  to  dispense  with  three  hundred  millions  of 
gold  that  form  our  material  currency,  was  it  wise  to  send 
it  off  in  years  of  quiet  and  prosperity,  instead  of  reserving  it 
to  the  decisive  hour  of  our  nationality  ? 

In  time  of  war,  a  mixed  currency  always  becomes  an  un- 


190  EXCHANGE.  [BOOK   III. 

mixed  paper  currency.  Being  at  all  times  really  inconvert- 
ible, any  disturbance  in  public  affairs  which  destroys,  or 
even  essentially  impairs  public  confidence,  will  cause  a  gen- 
eral suspension  of  the  mixed-currency  banks,  and,  of  course, 
of  the  government,  and  the  substitution  of  a  credit  for  a 
value  currency. 

If  this  is  true,  —  and  all  the  facts  of  history  go  to  prove 
it,  —  then  every  nation,  which,  in  time  of  peace,  relies  upon 
a  mixed  currency,  must,  in  time  of  war,  suffer  all  the  dis- 
asters incident  to  an  irredeemable  paper  currency;  must 
pay  a  great  deal  more  in  all  its  purchases,  require  larger 
loans,  and  accumulate  greater  debt,  —  greater  in  proportion 
as  the  currency  is  deficient  in  the  element  of  value. 

"  A  nation  may  almost  as  well  go  to  war  with  paper  guns  as  a 
paper  currency."  —  J.  Y.  Smith. 

The  truth  of  this  was  certainly  very  strongly  exhibited  in 
the  experience  of  the  government  of  the  United  States  dur- 
ing the  Rebellion.  The  failure  of  the  currency  compelled 
the  national  legislature  to  adopt  the  arbitrary  measure  of 
making  its  own  irredeemable  notes  legal  tender. 

This  was  a  palpable  violation  of  the  most  sacred  rights  of 
the  people,  and  involved  the  treasury  in  a  labyrinth  of  em- 
barrassment and  wasteful  expenditure.  Necessity,  which 
knows  no  law,  demanded  all  this ;  and  there  may  be  little 
or  no  blame  on  the  immediate  agents.  The  law  of  value 
had  already  been  violated  by  the  introduction,  in  peace, 
of  the  element  of  credit  into  that  currency,  which  the  gov- 
ernment was  obliged  to  make  use  of  in  time  of  war.  It  was 
not  easy  to  change  its  character  at  such  a  crisis,  and  it 
was  allowed  to  go  on  to  its  proper  consequences. 

If  these  are  the  natural  and  inevitable  results  of  a  mixed 
currency  in  such  an  event,  is  it  not  true  that  a  people  im- 
posing on  themselves  a  mixed  currency  can  never  be  finan- 
cially "prepared  for  war"? 

IV.  A  mixed  currency  discourages  domestic  manufao 


CHAP.  X.]  EFFECTS  OF  A  MIXED   CURRENCY.  191 

tures,  disturbs  the  proper  relation  of  exports  and  imports, 
and  puts  the  balance  of  trade  against  the  people  employing 
the  greater  proportion  of  credit. 

These  effects  will  be  recognized  as  injurious  by  all  classes 
of  persons ;  but  those  who  are  so  solicitous  for  the  positive 
encouragement  of  domestic  manufactures,  and  for  the  re- 
straint of  imports,  as  to  favor  the  enactment  of  prohibitory 
or  protective  laws  imposing  duties  on  the  foreign  article, 
will,  of  course,  most  fully  appreciate  and  deeply  feel  this 
tendency  of  a  mixed  currency. 

The  course  of  this  will  be  best  observed  in  an  illustration 
from  the  manufacture  of  a  specific  article :  — 

"  Suppose  that  a  certain  kind  of  broadcloth  can  be  afforded  by 
the  foreign  manufacturer,  delivered  at  New  York,  for  two  dollars 
per  yard  ;  the  same  article  might  be  made  in  this  country,  but 
would  cost  two  dollars  a  yard,  without  any  profit  whatever.  Of 
course,  then,  we  cannot  afford  to  make  the  article.  The  govern- 
ment, in  order  to  encourage  its  production  here,  lays  a  duty  upon 
the  imported  article  of  fifty  cents  per  yard  ;  but,  at  the  same  time, 
establishes  banks  which  manufacture  a  mixed  currency,  and  double 
the  natural  amount  of  money.  The  American  manufacturer  now 
proceeds  to  erect  his  mills ;  but  wages  and  materials  have  so  ad- 
vanced in  price,  by  the  expansion  of  the  currency,  that  it  costs  him 
twenty-five  to  fifty  per  cent  more  than  it  otherwise  would  have 
done.  He  builds  machinery ;  but  this  also  costs  him  pz-oportionably 
high.  He  proceeds  to  purchase  raw  materials,  and  employ  labor 
in  manufacturing ;  but  all  are  advanced  in  price  for  the  same  reason. 
His  own  expenses  for  living  are  also  greater ;  and,  should  he  be 
obliged  to  hire  money,  that  will  generally  be  found  to  have  advanced 
in  price,  or  rate  of  interest.  Under  these  circumstances,  he  cannot 
make  the  cloth  so  as  to  afford  a  profit ;  and  it  will  not  be  surprising 
if  he  should  clamor  for  more  protection.  But  it  may  be  said,  that 
the  same  causes  that  have  advanced  the  expenses  of  living,  and, 
consequently,  of  labor,  will  equally  have  advanced  the  price  of 
broadcloth.  Not  so.  The  price  of  the  broadcloth  will  be  deter- 
mined by  the  rate  at  which  it  can  be  afforded  by  the  foreign  manu- 
facturer ;  and  if  he  can  pay  the  duty  of  fifty  cents  per  yard,  and 
yet  obtain  a  fair  profit,  he  will  send  all  the  market  demands. 


192  EXCHANGE.  [BOOK   III. 

"  There  is  another  view  of  the  matter.  Suppose  we  would  ex- 
port our  plain  cottons,  for  example,  to  India.  We  there  meet  the 
English  article,  made  under  a  currency  more  valuable  than  our 
own,  which  can  consecpaently  be  afforded  for  less;  since,  with  the 
same  amount  of  the  money  of  India  (i.e.,  value  money),  the  English 
manufacturer  can  pay  for  much  more  labor  in  England  than  the 
American  manufacturer  can  in  America.  It  is  true  that  the  rate 
of  wages  is  lower  iu  England  than  in  this  country  ;  but,  in  addition 
to  this,  England  has  the  very  great  advantage  of  a  currency  nearer 
the  currency  of  international  exchange,  which  is  always  strictly 
value  money.  In  such  a  state  of  things,  not  all  the  tariffs  that  ever 
were  or  ever  will  be  imposed  can  adequately  protect  our  manu- 
factures. So  far  as  they  have  arisen  or  flourished,  it  has  been  in 
spite  of  these  disadvantages."  * 

During  the  continuance  of  the  compromise  tariff,  estab- 
lished in  1832,  and  which  terminated  in  1842,  the  currency 
varied  from  $11.82  to  $17.61  per  capita,  equal  to  an  expan- 
sion of  more  than  fifty  per  cent ;  while,  during  the  same 
period,  prices  (as  shown  by  table  V.,  page  177)  fluctuated 
to  a  greater  extent.  The  variation  in  prices  was  larger  even 
than  the  percentage  of  protective  duties. 

So  the  tariff  of  1842,  which  began  to  take  effect  in  1843, 
when  the  currency  was  $6.18  per  capita,  was  more  than 
counterbalanced  by  the  expansion  of  the  currency  to  $9.94 
in  1846.  But  the  manufacturer  suffered  as  much  from  the 
periodical  contractions  as  from  the  expansions  that  pre- 
ceded them  ;  for  while,  by  the  latter,  the  duties  were  ren- 
dered nugatory,  all  business  men  met  great  losses  from  the 
failures  and  the  general  derangement  and  stagnation  which 
the  former  produced.  No  tariff  of  reasonable  extent,  such 
as  the  people  of  the  whole  nation  would  endure,  can  ever 
place  the  domestic  manufacturer  in  a  position  of  security 
and  of  reliable  profit,  while  competing  with  such  an  immense 
advance  in  prices  as  must  certainly  accompany  an  expansion 
of  the  currency.  Nor  can  it  fail  to  be  true,  that  the  normal 
industrial  development  of  any  country,  in  which  such  a 

*  Walker  on  Money  and  Mixed  Currency,  p.  39. 


-  S 


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CHAP.  X.]  EFFECTS   OF   A   MIXED   CURRENCY.  193 

currency  exists,  must,  to  a  very  great  degree,  be  interrupted 
or  distorted.  All  ordinary  business  calculations  are  over- 
turned. An  element  of  hazard  is  introduced,  fatal  to  the 
shrewdest  schemes. 

The  terrific  struggles  through  which  American  manufac- 
turers have  passed,  ever  since  the  establishment  of  the  first 
tariff  in  1816,  have  been  caused,  not  by  foreign  competition, 
solely  or  mostly,  but  by  a  false  and  delusive  domestic  cur- 
rency. Fully  as  we  are  opposed  to  the  policy  of  protective 
duties,  we  are  still  more  opposed  to  that  system  of  currency 
which  neutralizes  them,  and  renders  the  legitimate  success 
of  home  manufactures  impossible,  even  after  so  great  sacri- 
fices to  introduce  them. 

There  is  a  still  more  striking  view  of  the  connection  be- 
tween protection  and  currency. 

It  is  generally  believed  that  high  tariff  duties  restrict  the 
importation  and  consumption  of  foreign  merchandise.  It  is 
a  popular  cry,  that  "  government  ought  to  lay  heavy  duties, 
so  as  to  prevent  an  adverse  balance  of  trade,  and  the  conse- 
quent shipment  of  specie  abroad." 

It  is  true,  as  a  principle,  that,  the  greater  the  price,  the 
less  the  consumption ;  and  that,  as  the  imposition  of  taxes 
on  the  foreign  article  increases  price,  so  it  must,  other 
things  equal,  decrease  consumption.  But  other  things  are 
not  equal.  They  have  not  been  so  in  this  country  during 
this  century.  The  facts  in  the  case  do  not  show  that  heavy 
duties  necessarily  reduce  the  consumption  of  foreign  arti- 
cles. On  the  contrary,  it  is  found  that  the  largest  importa- 
tion has  often  taken  place  during  the  existence  of  the 
highest  tariffs.  Diagram  No.  4  will  exhibit  the  relations  of 
the  tariffs  to  the  amount  of  imports,  from  1816  to  1861. 

Of  this  diagram,  showing  the  tariffs  and  the  consumption 
of  foreign  commodities  under  each,  it  must  be  remarked, 
that  the  line  indicating  the  different  tariffs  does  not  ex- 
press with  precision  the  actual  percentage  of  tax  imposed 
by  each,  because  that  is  not  practicable :  it  is  only  given  as 

13 


194  EXCHANGE.  [BOOK   III. 

an  approximation.  Each  of  the  tariffs  imposed  different 
rates  per  centum  on  different  items  ;  and  some  of  the  tariffs 
have  a  large  proportion  of  specific  duties,  or  so  much  per 
yard,  gallon,  or  pound  ;  so  that  the  exact  per  centum  cannot 
be  ascertained,  nor  is  this  necessary  to  our  purpose.  We 
are  able  to  determine,  with  sufficient  accuracy,  the  general 
percentage  of  each  tariff,  to  enable  us  to  judge  whether  the 
consumption  rises  and  falls  in  correspondence. 

The  tariff  of  1816  was  the  first  ever  laid  for  protection, 
and  is  estimated  at  twenty-four  per  cent.  Four  years  after- 
wards, viz.  in  1820,  the  tariff  was  increased.  Eight  years 
afterwards  (1828),  a  very  great  advance  was  made,  which  is 
placed  in  our  estimate  at  forty-eight  per  cent ;  but  it  may 
have  been  much  higher  than  that,  as  many  articles  were 
charged  with  high  specific  duties,  amounting  to  from  one 
hundred  to  two  hundred  per  cent.  It  was  almost  prohibi- 
tory, and  gave  such  umbrage  to  South  Carolina  and  other 
cotton-growing  States,  that  the  celebrated  compromise  tariff 
of  1832  was  enacted,  which  reduced  the  duties  at  the  rate 
of  ten  per  centum,  on  all  over  twenty  per  cent,  for  ten  years ; 
so  that,  at  the  end  of  that  time,  there  would  only  remain  the 
twenty-per-cent  duty. 

This  tariff  came  down  to  its  minimum  in  1842,  a  time  of 
great  depression  of  prices  and  trade,  growing  out  of  the 
monetary  revulsion  through  which  the  country  had  just 
passed.  A  strong  and  successful  appeal  was  made  for  an 
increase  of  duties ;  and  the  tariff  known  as  that  of  1842 
was  established,  giving  high  protection.  This  occasioned 
so  much  dissatisfaction,  that,  after  four  years,  the  rates  were 
again  reduced  by  the  tariff  of  1846.  This  remained  in  op- 
eration for  the  unprecedented  period  of  eleven  years,  when 
another  reduction  was  effected  by  the  tariff  of  1857.  This 
lasted  for  four  years,  when  the  necessities  of  the  treasury, 
in  consequence  of  war,  required  the  imposition  of  higher 
duties  in  1861 ;  since  which  they  have  been  still  further 
advanced. 


2P5. 


KiO  MillictlS    //   fiv/r/if 

150 

110 

1.11) 
120 
III) 

100 
390 
380 

r>70 

360 
350 
340 
330 

320 
7)10 
300 
290 
280 
'270 
260 
250 
2M 
210 
220 
•ill) 

200 

190 
180 

170 
KiO 
150 
I  Ml 
1.10 
120 
110 


Shaving  ///r  rblutne  /■/  the  Cu/rencp    and- the  /7npcrts 
///•  i Consumption    for  26  fea/s 


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Ci 


urrencp. 


/hi/m r/s 


to 


MUiom 
cf Imprints. 

:>io 

330 

1839  320 
310 
300 
290 
280 
270 
260 
250 
240 
230 
220 
210 
200 
190 
ISO 
170 
_I60 
150 
I  to 
uo 

-120 

no 

100 

90 

S) 
70 


CHAP.  X.]     EFFECTS  OF  A  MIXED  CUERENCY.  195 

With  these  explanations  of  the  diagram,  we  are  prepared 
to  inquire  into  its  teachings. 

Is  there  any  such  correspondence  between  the  two  lines 
as  to  indicate  that  one  is  governed  by  the  other  ?  Does  it 
appear,  that,  as  the  tariff  rises,  importations  fall  off;  that, 
as  it  is  lowered,  importations  increase  ?  Certainly  not.  We 
can  perceive  no  such  striking  correspondence  between  the 
two  lines  as  to  lead  us  to  believe  that  importations  are  gov- 
erned greatly  by  the  tariff. 

There  seems  to  be  a  disturbing  influence  which  deranges 
the  natural  movement  of  the  line  of  consumption. 

The  two  lines  clearly  do  not  show  such  a  correspondence 
as  to  prove  that  importations  are  uniformly  governed  by  the 
tariff. 

A  reference  to  Diagram  No.  5  will,  we  think,  show  the 
disturbing  cause,  or  rather  by  what  law  importations  are 
controlled. 

Here  we  find  a  correspondence  so  uniform  and  persistent 
as  to  decide  the  question,  beyond  cavil,  that  the  demand  for 
foreign  merchandise  depends  upon  the  quantity  of  currency 
in  the  country  ;  and,  as  that  increases  or  diminishes,  so  does 
the  consumption  of  imported  articles. 

The  immense  expansion  of  1836  carried  the  consumption 
up  to  $10.93  per  capita,  under  a  medium  tariff;  while,  under 
a  still  lower  one,  in  1840,  the  consumption  was  but  $5.21. 
Whereas,  if  consumption  is  governed  by  the  tariff,  it  should 
have  been  higher  than  in  1836. 

According  to  the  natural  effects  of  the  tariff  (the  en- 
hanced price  of  foreign  commodities),  consumption  should 
be  highest  when  the  tariff  is  lowest,  and  vice  versa.  We 
have  seen  that  such  correspondence  does  not  take  place. 
We  then  conclude  that  some  other  force  or  influence  oper- 
ates to  neutralize  the  power  of  protective  duties,  and  even 
reverse  the  natural  effect.  The  last  diagram  proves  the 
existence  of  such  a  cause,  and  shows  its  effects  on  im- 
ports. 


196  EXCHANGE.  [BOOK   in. 

Hence  we  may  lay  it  down  as  a  principle,  that  a  sound 
currency  is  more  important,  as  affording  protection  against 
foreign  competition,  than  a  high  tariff. 

We  close  our  remarks  on  this  subject,  by  quoting  the  fol- 
lowing forcible  and  just  statement,  found  in  the  "  Bankers' 
Magazine  "  (New  York)  for  1859-60,  page  2 :  — 

"  So  far  as  the  currency  of  a  country  is  alloyed,  so  far  as  any 
thing  inferior  to  bullion  is  allowed  to  ride  as  a  dead  weight  on  bul- 
lion's back,  it  is  of  little  consequence  whether  such  dead  weight 
be  composed  of  lead  or  copper,  paper  or  leather ;  nor,  so  far  as  the 
country's  home  trade  is  concerned,  does  it  matter  whether  the  sub- 
stitute for  bullion  circulates  in  distinct  pieces,  or  is  incorporated 
into  the  gold  and  silver  coin  at  the  mint.  It  is  of  great  importance 
to  the  profits  of  our  foreign  trade,  however,  that  every  fraction  of 
gold  and  silver  in  our  currency  should  have  its  own  proper  share 
of  alloy,  or  paper  inseparably  attached  to  it ;  so  that  foreign  pro- 
ducers, after  they  have  taken  paper-money  prices  of  us  for  their 
goods,  shall  not  wind  up  their  business  (as  they  have  done  hitherto) 
by  palming  their  share  of  paper  money  upon  us  at  par  for  actual 
gold.  As  things  now  are  managed,  American  trade  and  industry 
are  made  to  buy  paper  at  the  banks  at  the  price  of  gold,  and  sell 
gold  to  foreigners  at  the  price  of  paper." 


CHAPTER  XI. 

EFFECTS   OF   A  MIXED   CURRENCY   (concluded). 

V.  A  mixed  currency  causes  unnatural  and  extreme  fluc- 
tuations in  the  rate  of  interest. 

If  a  mixed  currency  is  in  its  nature  constantly  fluctuating, 
at  one  time  very  redundant,  at  another  very  scarce,  it  would 
seem  to  follow,  as  a  necessary  consequence,  that  the  rate  of 
interest,  which  is  merely  the  sum  paid  for  the  use  of  money, 
or  currency,  would  he  equally  so.  Practically,  we  find  that 
such  is  the  fact.     While  the  currency  is  in  the  process  of 


N^fi 


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36 

in 

■/. 

\/<niiri(/  the  Fluduatu  n  \  in   ///c  //////■•  cf  Interest 

|s51         /-/////    hfu/iir   </'  Currency                                    l^ 

34 

33 

-•> 

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30 
29 

LKW 

28 

n 

2<j 

25 

24 

l:i' 

22 

2] 

20 

19 

IS 

-^ 

17 

Iff 

15 

49 

14 

15 

12 

II 

l! 

>i, 

IIS 

10 

!) 

U 

w 

v_ 

s 

54_ 

3.0 

7 

6 

32 

3i 

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v. 

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8 

rt  ri/r  ff  Interest 

1 

IS 
17 
It) 
15 
II 
13 
12 
II 
10 
9 

7 
li 
.") 


I-Q7 

-   H2S 
Currency   per  Capita 


CHAP.  XI.]    EFFECTS  OF  A  MIXED  CURRENCY.  197 

expansion,  and  is  enlarged  by  new  issues  from  day  to  day, 
money  must  be  plenty,  and  the  rate  of  interest  low. 

When  the  currency  has  become  largely  increased,  and 
speculation  has  been  engendered  by  the  rise  of  prices,  the 
demand  for  money  will  increase  faster  than  the  supply,  and 
the  rate  of  interest  will  begin  to  advance. 

When  the  banks  have  arrived  at  that  point  at  which  they 
must  of  necessity  contract,  and  they  begin  to  take  in  their 
currency,  and,  of  course,  to  create  a  scarcity  of  the  means 
of  'paying  debts,  then  the  rate  of  interest  will  rise  to  a  very 
high  point,  not  unfrequently  to  four  or  six  times  its  natural 
rate. 

The  indebtedness  which  the  expansion  has  encouraged 
must  now  be  met,  at  all  events  and  at  any  sacrifice.  Sales 
of  property  cannot  be  made  for  cash,  because  all  cash  re- 
sources are  needed  to  meet  existing  indebtedness,  rapidly 
maturing ;  and,  consequently,  a  great  pressure  is  made  upon 
the  money  market.  The  severity  of  this  is  indicated  by  the 
rate  of  interest. 

Such  being  the  facts  in  the  case,  we  need  not  be  surprised 
to  find  that  the  highest  rates  of  interest  are  paid  at  times 
when  there  is  far  more  than  the  average  amount  of  cur- 
rency. 

On  the  other  hand,  when  indebtedness  has  been  dis- 
charged, both  by  the  banks  and  individuals,  and  the  cur- 
rency reduced  to  very  moderate  dimensions,  we  find  the  rate 
of  interest  very  low. 

Take  the  years  1837  and  1857.  Interest  was  up  to 
thirty-six  per  cent ;  yet  there  was  a  greater  amount  of  cur- 
rency, per  capita,  then  in  use,  than  ever  before  or  since. 
Take  the  years  1842-43,  for  an  opposite  example,  when  there 
was  less  currency  than  ever  before.  Money  was  very  plenty 
and  very  cheap. 

This  law  has  governed  the  rate  of  interest  at  all  times 
under  our  currency,  and  is  strikingly  exhibited  in  our  Dia- 
gram No.  6,  inserted  herewith. 


11)8  EXCHANGE.  [BOOK   III. 

By  this  diagram,  we  see, — 

First,  The  frequent  and  extreme  fluctuations  in  the  rate 
of  interest. 

Second,  That  the  highest  rates  of  interest  occur  when 
there  is  the  greatest  expansion  of  the  currency,  as  witness 
1886,  L839,  L854,  and  185T. 

Third,  That  the  lowest  rates  of  interest  are  found  where 
there  is  the  smallest  amount  of  currency,  as  in  1843-45. 

Fourth,  We  observe  some  remarkable  exceptions  to  these 
general  facts. 

In  1834,  we  find  the  interest  up  to  twenty-four  per  cent, 
while,  in  the  following  year,  it  was  down  to  five.  This  is 
easily  explained  by  those  cognizant  of  the  facts.  The 
United-States  Bank  then  in  existence  was  extremely  de- 
sirous of  recharter ;  and,  to  secure  this,  it  was  thought 
necessary  to  produce  a  tremendous  pressure  in  the  money 
market,  or,  in  the  expressive  language  of  the  day,  "  put  on 
the  screws."     This  result  was  a  high  rate  of  interest. 

The  following  year,  1835,  the  bank  took  the  opposite 
course,  and  interest  fell  below  the  natural  rate. 

In  1836,  there  was  a  great  expansion  of  the  currency,  as 
shown  in  the  lower  line  of  the  diagram.  Speculation  was 
rife,  the  banks  could  not  meet  the  demand  for  money,  and 
interest  went  up  to  thirty  per  cent.  In  1837,  the  banks 
suspended,  then  issued  freely,  and  interest  went  down  to  a 
low  point.  In  1838,  the  work  of  contraction  began  ;  a  mul- 
titude of  banks  in  the  West  and  South  failed,  and  the 
pressure  upon  the  solvent  banks  became  great ;  interest 
went  up  to  eighteen  per  cent.  The  year  1839  witnessed 
still  greater  distress  for  money.  Resumption  of  specie  pay- 
in.  Mils  by  the  banks  began  to  take  place,  and  consequently 
a  great  contraction  of  the  currency.  There  was  also  a  very 
large  exportation  of  specie  that  year;  and,  by  these  combined 
causes,  the  rate  of  interest  ran  up  to  thirty-six  per  cent. 
In  1840,  on  the  other  hand,  more  specie  was  imported  than 
exported.     The  indebtedness  of  the  country  had  been,  in 


CHAP.  XI.]  EFFECTS   OF   A   MIXED   CURRENCY.  199 

great  measure,  discharged,  and  money  was  plenty.  Inter- 
est was  down  to  five  or  six  per  cent.  In  1841,  there  was 
again  an  export  of  specie,  and  also  in  1842 ;  and  the  rate  of 
interest  went  up  to  nine  and  twelve  per  cent.  But,  in  1843, 
the  lowest  point  was  reached,  more  than  twenty  millions  of 
gold  were  imported,  and  money  was  a  drug.  Interest  was, 
for  a  while,  almost  nominal.  Large  amounts  were  nego- 
tiated as  low  as  three  and  a  half  per  cent. 

From  this  time  forward,  we  have  only  the  natural  results 
of  a  mixed  currency  in  its  fluctuations.  In  1847,  the  rate  of 
interest  was  high,  —  eighteen  per  cent,  —  though  the  cur- 
rency was  not  redundant.  This  was  the  year  of  the  Irish 
famine  ;  and  we  imported  twenty-two  millions  of  gold  above 
the  exports.  From  1849  to  1857,  the  currency  was  con- 
stantly increasing.  Severe  fluctuations  in  the  money  market 
took  place,  but  no  grand  revulsion  until  1857,  when  so  great 
was  the  inflation  of  the  currency,  and  consequently  the 
general  credit  of  the  country,  that  an  explosion  took  place  ; 
interest  going  up  to  thirty-six  per  cent.  All  these  facts  are 
significant,  and  form  an  essential  part  of  the  history  of 
mixed-currency  banking. 

The  comparative  fluctuations  in  the  United  States  and 
England  is  shown  by  the  following  table  of  rates  of  interest 
from  1844,  when  Sir  Robert  Peel's  act  was  passed,  up  to 
1858,  inclusive,  —  fifteen  years.  The  rates  of  the  Bank  of 
England  are  from  official  sources :  those  in  the  United  States 
are  furnished  by  one*  who  has  kept  himself  acquainted  with 
the  street  rates  in  the  city  of  Boston.  The  banks  being  pro- 
hibited by  legislation  from  taking  more  than  a  fixed  per 
cent,  the  actual  value  of  interest,  or  the  use  of  money,  can 
only  be  ascertained  from  quotations  of  transactions  outside. 
These  are  essentially  correct,  as  applied,  not  only  to  the  par- 
ticular market  in  which  they  were  taken,  but  to  the  other 
large  money  markets  of  the  country. 

*  Joseph  G.  Martin,  Esq.,  Boston,  author  of  many  valuable  statistical 
tables.  &c. 


200 


EXCHANGE. 


[book  in. 


TABUt  VI.,  thawing  the  Fluctuations  in  the  Rates  of  Interest  in  England  and  the 
United  States  from  1844  to  1858,  inclusive. 


Year. 

Kate,  Bonk 
of  England. 

Remarks. 

Rate, 

United  htatei. 

1846 

1847 

IS. |S 

4-2i 
2J-  3} 
3}—  3 
3  —  8 
5  —  3 
3  —  2} 
2}—  3 
3 

3  —  2 
2  —  5 
5  —  5} 

5  —  6 

6  —  4} 
5}— 10 
9  —  2} 

Passage  of  English  Bank  Act . 

4  —   5} 

5  6 

4       12 

7  —18 
12  — 18 

1849. 

7  —15 

1850. 

6}— 10} 
6       16 

l>.ril 

1852 

5}—  9 
6  —18 

1S53  . 

1854 

1855 

1856 

8  —18 
6} — 15 

7       11 

1858 

The  great  revulsion    .... 

9  —36 

3} —  9 

The  average  rate  of  interest  in  the  Bank  of  Eng- 
land, from  1844  to  1858,  as  computed  from  tables 
in  the  "  Merchants'  Magazine,"  vol.  li.  page  465, 
was 3.82  per  cent. 

Approximate  average  for  the   same  time   in   the 

United  States 10.5         „ 

We  say  apjiroximate  average;  for  the  data  are  too  imper- 
fect in  this  country  to  give  any  exact  results.  The  average 
of  10.5  may  be  somewhat  too  high ;  and  yet,  as  computed 
upon  transactions  made  in  Boston,  New  York,  Philadelphia, 
Baltimore,  Cincinnati,  Chicago,  and  St.  Louis,  it  is  doubt- 
ful whether  it  is  much  in  excess  of  the  true  average  rate. 

The  dividends  which  the  banks  of  this  country  make, 
after  paying  heavy  taxes  and  general  expenses,  show,  that 
the  rate  of  interest  they  obtain,  notwithstanding  the  legal 
restriction,  must  be  high  with  them;  and  it  is  notorious 
that  interest  "  outside "  at  all  times,  when  money  is  in 
demand,  is  greater  than  that  charged  by  the  banks.  The 
interest  paid  upon  mortgages  and  other  permanent  invest- 
ments is  most  commonly  six  per  cent.  It  is  mainly  on 
business  paper  that  the  high  rates  are  obtained. 


CHAP.  XI.]     EFFECTS  OF  A  MIXED  CURRENCY. 


201 


Table  VII.,  showing  the  Fluctuations  in  the  Rate  of  Interest  at  the  Bank  of  England 
for  160  Years,  divided  into  different  Periods. 


1704  to  1814,  inc. 
1815  to  1835,    „ 
1836  to  1843,    „ 
1844  to  1858,    „ 
1859  to  1863,    „ 


Term. 

Average 
Term. 

Kate  of 
Interest. 

Tears. 

in 

5 

Y'rs  m.  d'ys 

20  5  20 

4  to    5 

21 

3 

7  0     0 

4  to    5 

8 

8 

10     0 

4  to    6 

15 

49 

3     2 

2  to  10 

5 

44 

2     8 

2  to    8 

Bank  in  suspension  last  17  years. 
Bank  in  suspension  first  6  years. 

Bank  Act  of  1844  suspended  1847. 
Bank  Act  suspended  1857. 


The  foregoing  table  presents  a  striking  view  of  the 
mixed  currency  of  England. 

1st,  The  great  contrast  between  the  stability  of  the  rate 
of  interest  for  the  first  one  hundred  and  forty  years  and  the 
last  twenty  years ;  only  sixteen  changes  in  the  rate  during 
the  former,  and  ninety-three  changes  during  the  latter 
period. 

2d,  The  great  and  violent  fluctuations  within  the  last 
twenty  years,  ranging  from  two  to  ten  per  cent,  corre- 
sponding to  the  variations  in  the  United  States  from  four 
to  thirty-six. 

3d,  We  observe  the  several  suspensions  of  the  Bank  of 
England,  and  of  the  Bank  Act  of  1844. 

4th,  We  observe  the  same  succession  of  panics  as  have 
been  witnessed  in  the  United  States.  Sir  Robert  Peel,  in 
his  speech  on  the  suspension  of  the  Bank-charter  Act  in 
1847,  specifies  the  following :  "  the  panics  of  1784,  1793, 
1810,  1819,  1826,  and  1837."  The  panics  of  1847  and 
1857  have  since  been  added. 

Between  the  years  1784  and  1857,  inclusive,  —  a  period 
of  seventy-three  years,  —  there  have  been  eight  panics,  or, 
on  an  average,  one  in  nine  years,  if  we  reckon  that  of  1784. 

They  correspond  very  nearly  with'  those  panics  which 
have  occurred  in  the  United  States.  And  here  it  may  not 
be  improper  to  present  some  additional  facts  in  regard  to 
the  British  currency,  showing  in  how  far  it  corresponds 
to  our  own  in  its  character  and  effects. 


202  EXCHANGE.  [BOOK  in. 

THE   CURRENCIES   OF  GREAT  BRITAIN   AND   THE   UNITED   STATES 
COMPARED. 

From  1844  to  1859,  inclusive  (sixteen  years),  the  average 
circulation  of  all  the  banks  —  English,  Irish,  and  Scotch  — 
was  thirty-seven  millions  sterling  ;  average  specie,  eighteen 
millions. 

We  have  not  at  hand  any  account  of  the  deposits  in  any 
of  these  banks,  except  the  Bank  of  England.  In  that,  the 
average  of  deposits,  public  and  private,  was  about  sixteen 
millions,  while  the  circulation  was  nearly  twent}r-one.  It 
is  well  known  that  the  deposits  of  the  United  Kingdom  are 
made  chiefly  in  those  joint-stock  banks  which  do  not  issue 
currency,  but  are  confined  to  the  operations  of  legitimate 
banking.  In  addition  to  this,  we  have  the  consideration 
that  the  Bank  of  England  receives  very  largely  of  public 
deposits,  which  go  to  make  up  the  sum  already  stated. 
We  shall  therefore  be  safe  in  estimating  that  the  deposits 
of  all  the  currency  banks  of  the  United  Kingdom  are  less 
in  proportion  to  their  circulation  than  are  those  of  the  Bank 
of  England.  If,  then,  we  assume  the  deposits  to  be  on  the 
average,  in  all  the  remaining  banks,  fifty  per  cent  of  the 
circulation,  we  shall  have  the  following  result  for  the  cur- 
rency of  Great  Britain  :  — 

Bank  of  England's  circulation 21,000,000 

„             „         deposits 16,000,000 

Other  Banks'  circulation 16,000,000 

„          „      deposits  (estimated) 8,000,000 

61,000,000 
Total  specie,  as  before 18,000,000 

This  would  be  equal  to  nearly  thirty  per  cent  against 
eighteen  per  cent  in  the  currency  of  the  United  States, 
showing  a  considerable  superiority  in  quality. 

But  this  is  only  a  partial  view  of  the  matter.  The  Bank 
of  England  issues  no  notes  of  less  denomination  than  five 


CHAP.  XI.]  EFFECTS   OF   A   MIXED   CURRENCY.  203 

pounds.  The  banks  of  Ireland  and  Scotland  issue  none 
less  than  one  pound  (or  five  dollars) ;  while,  in  the  United 
States  generally,  bank-notes  are  issued  as  low  as  one  dollar 
(or  four  shillings  sterling).  This  makes  a  vast  difference 
in  the  amount  of  specie  in  the  hands  of  the  people. 

All  small  transactions  are  made  in  gold.  A  traveller 
may  pass  months  in  England,  and  expend  thousands  of 
dollars,  without  ever  seeing  a  bank-note  in  the  hands  of  any- 
body. 

Probably  it  would  not  be  extravagant  to  suppose,  that 
there  was,  on  an  average,  a  sum  equal  to  two  pounds  to 
each  inhabitant.  It  has,  indeed,  been  estimated  much 
higher ;  but  allowing  only  two  pounds  each,  equal  to  ten 
dollars,  we  should  have,  on  a  population  of  twenty-six  mil- 
lions, fifty-two  millions  sterling,  equal  to,  say,  two  hundred 
and  fifty  million  dollars. 

From  the  foregoing  statements,  it  will  be  seen  how  much 
greater  is  the  stability  of  the  currency  of  Great  Britain 
than  that  of  the  United  States. 

The  currency  of  Scotland  approaches  more  nearly  to  that 
of  this  country  than  any  other  section  of  Great  Britain. 
One-pound  notes  are  issued  to  the  extent  of  two-thirds  of 
its  whole  circulation  ;  and  the  proportion  of  specie  held  by 
the  banks  is  smaller. 

The  consequence  is,  that  monetary  affairs  are  more  fluc- 
tuating, and  the  number  of  bankruptcies  greater,  than  in 
the  other  part  of  Great  Britain. 

There  are  no  reliable  statistics  by  which  to  determine  the 
relative  proportion  of  failures  in  each  of  the  different  mixed- 
currency  countries  of  the  world ;  but,  had  we  the  data,  it 
would  undoubtedly  appear  that  the  proportion  of  failures  in 
each  country  was  governed  strictly  by  the  character  of  its 
currency. 

In  the  United  States,  where  the  currency  for  the  last 
thirty-five  years  has  been  weaker  than  any  other  in  the 
world,  the   proportion   of  failures   are  well  known  to  be 


204 


EXCHANGE. 


[BOOK   III. 


greater  than  anywhere  else.  The  common  estimate  has 
been  ninety  in  one  hundred.  There  is  nothing  myste- 
rious in  this  result.  It  is  the  natural  consequence  of  a 
fluctuating  and  unreliable  currency.  Notwithstanding  this 
greater  stability  of  the  English  currency,  as  compared  with 
that  of  the  United  States,  it  is  still  so  essentially  defective, 
so  alloyed  or  adulterated  with  the  element  of  credit,  that  it 
produces  in  degree,  though  not  in  extent,  the  same  evils 
suffered  in  the  United  States.  The  commerce  of  the  vast 
empire  of  Great  Britain  is  kept  in  a  state  of  continual  per- 
turbation. The  "reserve"  of  the  Bank  of  England  is 
watched  with  the  greatest  solicitude  :  as  it  rises  or  falls,  so 
every  business  man  in  the  nation  is  affected.  This  has 
become  more  strikingly  apparent  within  the  last  twenty 
years.  The  fluctuations  in  the  bank  rate  of  interest  have 
been  more  frequent  and  violent  than  previously,  and  seem 
to  be  growing  worse  from  year  to  year. 

We  annex  a  Table  VIII. ,  showing  the  bank  reserve  for 
each  year  from  1844  to  1858,  and  the  corresponding  rates 
of  interest  charged  by  the  Bank  of  England,  together  with 
a  diagram,  No  7,   representing  the  same. 


Table  VIII.,  showing  the  Rates  of  Interest  each  Tear  in  the  Bank  of  England, 
with  the  Amount  of  the  Bank  Reserve  at  the  corresponding  Date,  from  1844  to  1858, 
inclusive,  and  the  Suspensions  of  the  Bank  Act. 


Teak. 

Bank  Reserve. 

Bank  Rate  of 
Interest. 

1844 

8J  millions 
6         „ 

10  „ 

li        „ 

11  „ 
121 

13  „ 

*          » 

14  „ 
6          „ 
4          „ 

12  „ 
8          „ 

li       „ 
13J        „ 

2i  per  cent 

Si    .. 

1846 

3      „ 

1848 

Suspension  of  Bank  Act 

8      „       „ 
3      „       „ 
2i    „       „ 
2i    „       „ 
3      .. 

2      .. 

6i    „       „ 
3i    i)       n 
H   „     » 
10     „      „ 
2i    „       „ 

1857 

Suspension  of  Bank  Act 

N"7. 


Reserve 
II  MtlUeru     Sterling 

13 

12 
II 
II) 

9 

8 

7 

6 

5 

1 

2 
I 


BANK   OF    ENGLAND 

JIM 


IvVl 


/lfin/r  He-serve 


SOeresl 

/'/■/■/  r/// 


/t/r/f  of/hleresl 


CHAP.  XI.]  EFFECTS   OF   A   MIXED   CURRENCY.  205 

Observe  the  correspondence  between  Diagrams  No.  6 
and  7.  The  rate  of  interest  in  both  countries  is  evidently 
affected  by  the  same  disturbing  force,  though  in  different 
degrees. 


EFFECTS  OF  MIXED  CURRENCY  UPON  AMERICAN  AGRICULTURE. 

Unfavorable  as  the  influence  of  mixed  currency  is  upon 
all  branches  of  industry,  the  agriculture  of  the  United 
States  is  especially  injured  by  it,  because,  as  a  people,  we 
have  a  large  surplus  of  agricultural  products,  that  must  find 
sale  in  foreign  markets.  Whatever  such  surplus  is  worth 
for  export,  determines  the  price  of  the  whole  crop ;  and 
the  value  or  price  is  determined  by  its  value  or  price  in 
gold.  Such  products  are  virtually  sold  for  gold.  It  is 
always  a  matter  of  choice  with  the  merchant  whether  to 
send  wheat,*  for  example,  or  gold,  as  a  remittance.  The 
produce  of  the  farmer,  then,  must  be  sold  at  a  gold  stand- 
ard ;  but  all  he  purchases  for  himself  and  family  is  bought 
at  currency  prices.  How  much  difference  this  may  make 
is  seen  at  the  present  time,  when  commodities  in  general 
are  one  hundred  and  twenty  per  cent  above  par,  while  gold 
is  but  forty. 

The  currency  is  now  (1865)  a  credit,  or  inconvertible 
one ;  but  we  are  to  inquire  whether  the  principle  does  not 
hold  good  at  all  times,  under  a  mixed  or  partially  converti- 
ble currency.  "We  therefore  refer  to  the  statistical  tables 
of  the  Financial  Report  of  1863,  as  heretofore,  for  prices, 
and  construct  a  table  which  exhibits  the  price  of  flour  and 
the  price  of  cotton  for  fourteen  years  prior  to  1860.  We 
also  give  the  general  prices  of  certain  commodities,  as  shown 
in  our  Table  V.,  previously  given  (see  page  178,)  and  also 
the  volume  of  the  currency,  per  capita,  at  corresponding 
dates : — 

*  Wheat  may  be  taken  as  an  exponent  of  all  agricultural  products  ex- 
ported. 


206 


EXCHANGE. 


[book  m. 


Taui.e  IX.,  shcnring  the  Price  of  Flour  and  Cotton  from  1846  to  1859,  inclusive 
(14  Tears),  with  the  'Currency  per  Cajnta,  and  General  Prices  at  corresponding 
Dates. 


Teaks. 

©  9 

'o  a 

7* 

h 

y  ft* 

Yeaes. 

$5.77 

o  a 

•~2 

1i 

1846  .  . 

$5.06 

$9.94 

$16.69 

1853  .  . 

10J 

$13.65 

$22.47 

1847  .  . 

6.67 

8 

9.38 

20.82 

1854  .  . 

8.94 

9 

14.95 

20.84 

1848  .  . 

5.96 

8* 

10.67 

16.53 

1855  .  . 

8.76 

9} 

13.93 

2278 

1849  .  . 

5.50 

8 

9.18 

16.45 

1856  .  . 

6.42 

10J 

14.64 

25.02 

1860  .  . 

5.55 

12 

10.39 

16.20 

1857  .  . 

5.78 

14 

15.50 

25.13 

1851  .  . 

4.52 

10 

11.86 

19.42 

1858  .  . 

4.30 

13 

11.55 

21.92 

1852  .  . 

5.00 

9 

13.31 

21.42 

1859  .  . 

5.10 

Hi 

14.90 

22.11 

The  foregoing  table  shows  conclusively,  that,  while  gen- 
eral prices  conform  remarkably  to  the  existing  quantity  of 
currency,  flour  and  cotton  do  not  rise  and  fall  with  its  fluc- 
tuations. Flour,  for  example,  in  1846,  with  a  currency  of 
9.94,  was  at  $5.06 ;  while  in  1851,  when  the  currency  had 
risen  to  11.86,  an  advance  of  twenty  per  cent,  flour  was  at 
$4.50,  a  decline  of  ten  per  cent.  Cotton  was  at  12  cents, 
under  a  currency  of  10.39,  in  1850,  and  but  9  cents,  under 
a  currency  of  14.95,  in  1854.  But  we  need  not  point  to 
these  facts ;  they  arc  quite  apparent  throughout  the  whole 
table,  and  show  beyond  cavil  that  the  prices  of  agri- 
cultural products  in  the  United  States  are  not  governed 
by  its  mixed  currency,  as  other  products  are  which  the  ag- 
riculturist must  purchase  for  consumption.  Hence  he  is 
always  a  sufferer,  as  compared  with  the  manufacturer  and 
all  other  classes  whose  productions  are  not  exported ;  for  the 
commodities  of  the  latter,  while  they  are  advanced  in  cost 
by  currency  inflation,  are  also,  unless  they  come  especially 
into  competition  with  foreign  products,  correspondingly 
enhanced  in  price  in  the  home  market. 

Ordinarily,  this  operation  of  a  mixed  currency  is  not  ap- 
parent to  superficial  observers ;  but  the  effects  are,  never- 
theless, always  as  certain  as  at  the  present  time,  when  they 
are  seen  by  every  one. 


CHAP.  XII.]  MIXED-CURRENCY   FALLACIES.  207 

At  the  time  we  are  writing,  the  people  of  the  West  are 
suffering  prodigiously  from  the  influence  of  a  redundant 
currency.  All  they  consume  of  purchased  commodities 
they  pay  one  hundred  and  twenty  per  cent  advance  upon ; 
while  their  products,  wheat,  corn,  &c,  can  only  be  advanced 
about  forty  per  cent, — the  premium  on  gold.  They  feel  dis- 
tressed, and  clamor  against  the  tariff,  as  they  have  much 
reason  to  do ;  but  they  suffer  a  loss  of  ten  dollars  from  the 
currency,  to  one  from  the  tariff.  Whenever  they  see  this, 
the  evil  will  be  remedied ;  for  the  agriculturists  of  the  na- 
tion hold  the  political  power  of  the  country  in  their  hands, 
and  all  this  class  of  producers,  East  or  West,  North  or 
South,  in  Maine  or  Texas,  Florida  or  Minnesota,  are  alike 
interested  in  this  matter. 

Again,  agriculture  is  more  disturbed  by  speculative  op- 
erations than  other  branches  of  industry.  Its  products 
are  great  staples,  the  necessaries  of  life.  They  are  not 
subject  to  quick  decay  ;  hence  can  be  monopolized  and  held 
for  a  rise  of  prices.  The  sudden  and  excessive  expansions 
of  a  mixed  currency  afford  great  opportunities  for  opera- 
tions of  this  sort ;  and  no  products,  probably,  are  so  much 
speculated  upon  as  those  of  the  farmer  and  planter.  The 
profit  of  all  this  goes  to  those  who  can  command  the  re- 
sources of  the  banks.  The  producers  are  far  more  injured 
than  benefited  by  these  unnatural  disturbances  of  the 
market. 


CHAPTER  XII. 

PALLACIE3  REGARDING  A  MIXED  CURRENCY. 

Fallacy  1st.  That,  by  means  of  mixed-currency  banks, 
the  capital  of  a  country  is  greatly  increased. 

Capital  is  the  portion  of  wealth  employed  in  reproduc- 
tion.    Money  is  one  form  of  capital.     To  the  banker  or 


208  EXCHANGE.  [BOOK   in. 

money-lender,  it  may  be  his  entire  capital ;  but,  to  the  mer- 
chant, manufacturer,  or  agriculturist,  it  is  capital  only  as 
the  instrument  by  which  he  obtains  those  commodities 
which  constitute  his  main  capital,  upon  which  he  does  his 
work,  and  from  which  he  makes  his  profits. 

Of  the  great  mass  of  the  world's  capital,  money  is  but  a 
small  fraction.  Credit  is  no  part  at  all.  Capital,  we  have 
said,  is  that  portion  of  wealth  employed  in  reproduction. 
Money  is  that  portion  of  capital  which  is  employed  in  re- 
production, for  the  special  purpose  of  effecting  easily  that 
exchange  of  values  which  itself  confers  value,  because  done 
by  labor. 

To  the  greater  part  of  mankind,  money  is  only  the  means 
by  which  capital  is  obtained  from  those  who  have  it. 

Now,  were  it  not  for  mixed-currency  banks,  all  the  capi- 
tal loaned  in  the  form  of  money  would  be  reliable.  Mixed 
currency,  for  the  time  being,  takes  the  place  of  actual 
money,  and  becomes  an  instrument  by  which  capital  is 
transferred.  But  its  nature  is,  as  we  have  seen,  to  issue 
in  greater  volume  than  necessary  for  the  wants  of  com- 
merce, and,  by  this,  to  disturb  the  business  of  the  country, 
cause  an  unnatural  rise  of  prices,  an  increase  of  imports,  a 
decrease  of  exports,  and  finally  a  call  for  real  money,  which 
will  cause  the  withdrawal  of  all  the  extra  currency  at  the 
very  moment  when,  owing  to  the  increased  indebtedness  it 
has  caused,  it  is  more  needed  than  at  any  other  period.  It 
will  then  be  discovered  that  this  excess  was  not  capital,  or 
actual  value,  but  credit,  in  the  guise  of  capital,  which  the 
mixed-currency  banks  had  issued,  and  which  they  were 
compelled  to  withdraw  when  most  wanted. 

Fallacy  2d.  That  mixed  currency  is  cheaper  than  a  value 
currency,  more  economical,  and  therefore  more  desirable. 

Specie  costs  much  labor.  Paper  costs  but  little  in  com- 
parison :  therefore,  as  it  answers  the  same  purpose,  and  is 
more  conveniently  handled,  it  confers  a  benefit.  Tins  is  a 
popular  idea. 


CHAP.  XII.]  MIXED-CURRENCY   FALLACIES.  209 

Money,  we  have  said,  is  an  instrument,  nothing  else ;  we 
do  not  eat,  drink,  or  wear  it.  All  tools,  instruments,  or 
appliances  should  be  as  cheap  as  possible,  provided,  always, 
they  are  safe  and  efficient.  It  would  be  cheaper  to  have 
ploughs  made  wholly  of  wood.  They  would  be  lighter,  and 
quite  as  handsome,  as  when  made  partly  of  iron.  But 
would  they  be  as  useful,  and,  in  the  end,  as  profitable  ? 

A  paper  cap  is  cheaper  than  one  of  leather  or  cloth  ;  but 
would  it  be  as  durable  and  comfortable  ?  If  not,  although 
in  the  first  instance  it  costs  less,  it  would  not  be  desirable 
for  use.     The  same  principle  applies  to  money. 

If  what  we  have  already  said  of  a  mixed  currency  is 
true,  it  is  wanting  in  those  qualities  which  would  make 
it  cheaper  than  a  value  currency.  It  does  not  discharge 
fully  or  perfectly  a  single  function  of  money.  It  deranges 
trade,  because  it  does  not  obey  the  laws  of  trade.  It  in- 
creases credit  enormously,  by  its  expansions,  because  it  is 
itself  credit ;  and  impairs  it  by  its  contractions  when  its 
own  credit  is  blown  upon. 

But  the  gain  by  this  substitution  of  credit  for  value  in 
the  currency  is  insignificant,  when  compared  with  the  great 
interests  of  trade. 

The  average  of  paper  circidation  in  the  United  States  from 
1850  to  1859,  inclusive,  ten  years,  was  not  more  than  $6.25 
per  capita.  If  from  this  we  deduct  the  average  specie  per 
capita  for  the  same  time  held  by  the  banks,  viz.  $2.25,  we 
shall  have  left  $4.00,  as  the  amount  for  each  individual  of 
credit  circulation.  On  that  amount,  the  saving,  if  any,  is 
to  be  made.  If  we  compute  the  interest  at  six  per  cent, 
we  have  twenty-four  cents  as  the  annual  saving  to  each  in- 
dividual by  the  use  of  credit  currency  ;  a  saving  worth  the 
attention  of  the  statesman,  if  it  could  be  properly  and  safely 
made,  but  paltry  in  comparison  with  the  losses  and  disturb- 
ances incident  to  a  mixed  currency. 

In  this  connection,  it  seems  proper  to  introduce  a  distinct 

14 


210  EXCHANGE.  [BOOK   III. 

calculation  of  the  damage  occasioned  to  the  people  generally 
from  this  cause. 

On  the  7th  of  January,  1841,  Congress  requested  of  the 
Secretary  of  the  Treasury,  first,  a  return  of  the  losses  sus- 
tained by  the  government  from  using  banks  as  depositaries, 
and  by  its  connection  generally  with  them  ;  and,  secondly, 
the  amount  the  people  had  lost  on  account  of  the  banks  and 
their  issues.     The  replies  were  in  substance  as  follows  :  *  — 

Losses  sustained  by  government  to  the  year  1837  .     .  S15, 492,000 

„      sustained  by  the  public 108,885,721 

„      by  bank  suspensions  and  by  depreciated  notes  .     95,000,000 

„      by  destruction  of  bank-notes 7,121,332 

„      by  counterfeits  beyond  losses  by  coin ....       4,444,444 
„      by  fluctuations,  revulsions,  sacrifices  ....  150,000,000 

Aggregate $380,943,497 

Such  were  the  estimates  of  the  losses  to  the  people  and 
the  government  resulting  from  the  use  of  a  mixed  currency 
up  to  1841.  There  can  be  no  doubt,  in  the  minds  of  men 
who  were  in  business  during  the  period  covered  by  these 
figures,  that  they  are  so  far  correct  that  they  fail  only  by 
reason  of  being  set  too  low,  particularly  those  of  the  last 
item ;  viz., "  losses  by  fluctuations,  revulsions,  and  sacrifices." 

Twenty-four  years  have  elapsed  now  (1865)  since  the 
foregoing  table  was  prepared ;  and,  during  that  time,  the  cur- 
rency has  been  doubled,  the  country  has  passed  through 
several  contractions  and  one  or  two  explosions,  and  has 
suffered  as  much  probably  as  in  the  preceding  period.  If 
so,  the  total  loss  would  amount  to  seven  hundred  and  sixty 
million  dollars.  But  suppose  it  to  be  only  five  hundred  mil- 
lion dollars :  that  amount  would  furnish  gold  and  silver 
currency  sufficient,  not  only  to  supply  our  wants  at  present, 
but  for  generations  to  come. 

Some  have  supposed  that  a  great  saving  is  made  by  the 
use  of  paper  money  instead  of  coin.    But  it  is  not  necessary 

*  See  "  Merchants'  Magazine,"  vol.  1.  p.  9. 


CHAP.  XII.]  MIXED-CURRENCY   FALLACIES.  211 

to  have  a  mixed  currency  in  order  to  avoid  abrasion  of  the 
coin.  A  mercantile  currency,  based  wholly  on  specie,  would 
equally  avoid  loss  from  this  cause,  and  yet  secure  all  the 
advantages  of  a  value  currency. 

But,  in  fact,  the  abrasion  of  paper  currency  is  far  greater 
than  that  of  gold ;  that  is,  it  costs  more  to  keep  out  one 
hundred  dollars  of  currency  than  it  does  to  keep  out 
one  hundred  dollars  in  coin.  Gold  and  silver  circulate 
themselves  ;  but  it  requires  a  formidable  machinery  to  circu- 
late paper  promises, —  a  machinery  far  more  costly  than  the 
slow  wear  of  the  precious  metals.  No  banker  would  venture 
to  say  that  a  paper  currency  can  be  maintained  for  one- 
twentieth  of  one  per  cent  per  annum. 

It  may  be  said  that  the  banks  gain  a  considerable  sum  by 
the  accidental  destruction  of  their  notes.  Doubtless ;  but 
what  they  gain  somebody  loses.  The  amount  estimated  to 
have  disappeared  in  this  manner  up  to  1841,  as  we  have 
seen  in  the  table  just  cited,  was  put  at  seven  millions  of 
dollars.  A  very  large  proportion  of  this  fell  on  the  poorer 
classes,  as  also  do  the  losses  by  counterfeiting. 

But,  if  we  would  comprehend  the  question  of  economy, 
we  must  appreciate  the  expense  of  maintaining  all  the  offi- 
cers, managers,  and  subordinates  of  fifteen  hundred  banks, 
with  all  the  incidental  charges  of  their  operations.  At  a 
moderate  calculation,  this  would  not  average  less  than  four 
thousand  dollars  to  each  bank,  or  a  total  sum  of  six  million 
dollars  per  annum. 

This  argument  of  economy  in  the  use  of  credit  money 
was  presented  by  Dr.  Adam  Smith  eighty  years  ago.  Even 
then  the  danger  was  apparent,  though  the  system  had  not 
been  developed  to  its  proper  character  and  consequences. 
Had  the  writer  witnessed  the  great  convulsions  from  1797 
to  1857,  he  would  have  dismissed,  as  wholly  an  idle  fancy, 
the  scheme  of  substituting  the  "  Dsedalian  wings "  (say, 
rather,  the  Icarian  wings)  of  credit  for  the  "  solid  ground  " 
of  value.     He  says :  — 


212  EXCHANGE.  [BOOK   III. 

"  The  gold  aud  silver  money  which  circulates  in  any  country 
may  very  properly  be  compared  to  a  highway ;  which,  while  it  cir- 
culates, and  carries  to  market  all  the  grass  and  corn  of  the  country, 
produces  itself  not  a  single  pile  of  either.  The  judicious  operations 
of  banking,  by  providing,  if  I  may  be  allowed  so  violent  a  metaphor, 
a  sort  of  wagon-way  through  the  air,  enable  the  country  to  con- 
vert, as  it  were,  a  great  part  of  its  highways  into  good  pastures  and 
cornfields,  and  thereby  to  increase  very  considerably  the  annual 
produce  of  its  land  and  labor.  The  commerce  and  industry  of  the 
country,  however,  it  must  be  acknowledged,  though  they  may  be 
somewhat  augmented,  cannot  be  altogether  so  secure,  when  they 
are  thus,  as  it  were,  suspended  upon  the  Daedalian  wings  of  papi  r 
money,  as  when  they  travel  about  upon  the  solid  ground  of  gold 
ai id  silver.  Over  and  above  the  accidents  to  which  they  are  ex- 
posed from  the  unskilfulness  of  the  conductors  of  this  paper  money, 
they  are  liable  to  several  others,  from  which  no  prudence  or  skill 
of  those  conductors  can  guard  them." 

This  comparison  is  full  and  just  in  every  particular. 
Nations  have  been  trying  to  make  a  small  saving  by  dis- 
pensing with  the  vital  condition  of  all  their  wealth.  These 
political  farmers  have  always  ached  to  be  ploughing  up  and 
seeding  down  the  very  highways  of  their  industry;  far 
more  intent  on  this  than  to  improve  the  land  already  at 
their  disposal.  "  A  wagon-way  through  the  air "  is  no 
violent,  but  rather  a  modest,  metaphor  for  the  schemes  by 
which  they  propose  to  make  nothing  do  the  work  of  some- 
thing. A  man  might  as  reasonably  try  to  make  a  saving 
by  selling  his  own  blood  as  a  nation  gain  aught  by  robbing 
its  commerce  of  money.  It  is  an  attempt  to  cheat  the  house 
of  its  foundation,  the  animal  of  its  food. 

Nor  is  it  even  economy,  at  the  first  and  on  the  face.  Ex- 
perience has  shown  that  this  extensive  system  of  aerial 
railways  is  rather  more  costly  in  its  outlay  than  the  more 
natural  one  that  rests  upon  the  ground.  Industrial  bal- 
looning has  always  been  difficult  and  dangerous. 

Fallacy  od.  That  the  use  of  mixed  currency  has  been 
the  cause  of  the  great  prosperity  of  the  United  States. 


CHAP.  XII.]  MIXED-CUERENCY  FALLACIES.  213 

This  is,  doubtless,  a  very  idle  assumption,  unworthy  of 
discussion.     Yet  thousands  are  influenced  by  it. 

A  coincidence  is  taken,  by  force,  for  a  cause. 

The  United  States  have  prospered  greatly,  and  at  the 
same  time  there  has  been  a  large  consumption  of  intoxica- 
ting drinks.  Surely  this  does  not  prove  that  the  prosperity 
of  the  country  was  caused  by  the  use  of  liquor. 

Has  the  country  flourished  by  reason  of,  or  in  despite  of. 
such  use  ?  Intoxicating  liquors  stimulate  men  to  greater 
effort ;  therefore  they  increase  production.  Mixed  currency 
stimulates  exchanges,  increases  prices,  promotes  specula- 
tions ;  therefore  it  is  favorable  to  production. 

Such  is  the  reasoning,  and  it  is  equally  good  in  each  case. 
In  both,  the  misdirection  of  effort  and  the  certain  depression 
of  energy  are  kept  out  of  sight.  Mixed  currency  never 
gave  strength  or  wisdom  or  skill  or  economy  to  any  hu- 
man being,  and  therefore  never  can  have  increased  the 
products  of  the  country,  or  enlarged  its  wealth,  in  any  man- 
ner whatever.  Its  unnatural  excitements  are  followed  by 
unnatural  prostration.  Men  do  not  work  more,  but  they 
trade  more,  speculate  more,  and  squander  more,  during  the 
flood-time  of  an  expansion.  More  is  expended  for  foreign 
luxuries ;  there  is  more  extravagance  and  waste,  which 
superficial  observers  take  to  be  indications  of  prosperity. 
In  the  time  of  reckoning,  trade  is  as  much  depressed  as  it 
was  falsely  stimulated. 

Fallacy  4,th.  That  there  is  not  gold  and  silver  enough  in 
existence  to  form  a  currency  adequate  to  the  rapidly  ex- 
tending operations  of  commerce  ;  and  therefore  resort  must 
be  had  to  paper  substitutes. 

Twenty  years  ago,  this  was  regarded  as  an  unanswerable 
argument  in  favor  of  credit  currency.  The  recent  discov- 
eries of  apparently  inexhaustible  mines,  and  the  immense 
production  already  realized,  have  to  a  great  extent  silenced 
the  senseless  clamor  once  raised  on  this  point.  Yet  the 
assertion  is  as  true  now  as  ever.     Only  about  one-half  of 


214  EXCHANGE.  [BOOK   III. 

the  whole  amount  of  precious  metals  in  possession  of  man, 
from  the  fifteenth  to  the  middle  of  the  nineteenth  centuries, 
was  required  for  coin ;  the  balance  remaining  in  plate  and 
ornaments,  mostly  in  Europe  and  the  East. 

The  reason  of  such  general  error  on  this  point  is  found  in 
the  totally  inadequate  ideas  prevailing  as  to  the  amount  of 
currency  needed  for  trade.  People  are  informed,  that  the 
annual  products  of  the  United  States,  for  example,  are,  say, 
four  thousand  millions  ;  and  they  fancy  that  four  thousand 
millions  of  currency,  or  something  near  that  sum,  is  neces- 
sary to  transfer  this  immense  production  :  whereas  it  is 
true  that  a  very  small  fraction  of  the  amount  is  required. 

Mr.  Col  well,  in  his  "  Ways  and  Means  of  Payment,"  esti- 
mates that  all  the  securities  issued  in  the  United  States, 
including  "  promissory  notes,  bank-notes,  bank  credits,  and 
other  currency,  —  in  short,  all  which  intervene  between 
buyer  and  seller,"  —  amount  to  one  thousand  million  dol- 
lars every  three  months,  or  four  thousand  million  dollars 
per  year.  Yet  we  know  that  all  this  is  wiped  off  with,  at 
the  most,  not  more  than  four  hundred  million  dollars  of  cur- 
rency, or  about  one-tenth  of  the  aggregate  indebtedness. 

Now,  that  the  people  of  the  United  States  could  not  com- 
mand sufficient  gold  to  furnish  a  currency  equal  to  their 
wants  is  preposterous,  since  the  yearly  production  of  Cali- 
fornia, for  at  least  twelve  years,  has  amounted  to  fifty  mil- 
lions, — in  all,  say,  six  hundred  millions  of  gold ;  a  sum  about 
double  our  requirements  for  a  sound  currency. 

Instead  of  using  this,  we  find  that  the  amount  of  specie 
in  all  the  banks  in  1848,  the  time  of  the  discovery  of  the 
gold  mines,  was  forty-six  millions,  and  that  on  the  first  of 
January,  18G0,  the  amount  was  eighty-three  millions  ;  show- 
ing, that,  of  all  the  gold  obtained  from  California,  only  thirty- 
seven  millions,  or  about  one-sixteenth,  had  found  its  way 
into  the  bank  currency  of  the  country.  In  the  mean  time, 
the  total  exports  of  the  nation  had  increased  from  one  hun- 
dred and  fifty-four  to  three  hundred  and  sixty  millions,  or 


CHAP.  XII.]  MIXED-CURRENCY  FALLACIES.  215 

more  than  double.  Again,  the  amount  of  specie  per  capita 
in  bank  for  ten  years  prior  to  the  discoveries,  say  from 
1839  to  1848  inclusive,  was  $2.07 ;  while  for  the  succeeding 
ten  years,  1849  to  1858  inclusive,  it  was  but  $2.10,  —  showing 
an  actual  gain  of  but  three  cents  to  each  individual,  notwith- 
standing the  accessions  of  gold  to  the  amount  of  six  hundred 
millions,  or  twenty  dollars  per  capita. 

What  had  become  of  this  gold  ?  It  had  been  exported. 
Why  ?  Because  the  credit  currency  of  the  country  expelled 
that  part,  which,  but  for  itself,  would  have  formed  a  reliable 
and  sufficient  currency  for  the  nation.  The  actual  per- 
centage of  specie  to  currency  from  1840  to  1849,  ten  years, 
was  twenty  per  cent;  from  1850  to  1859,  ten  years,  only 
seventeen  per  cent,  —  showing  that  the  quality  of  the  cur- 
rency was  actually  poorer  after  than  before  the  gold  discov- 
eries. 

But,  while  it  is  thus  seen  to  be  practically  untrue  that 
there  is  not  enough  of  the  precious  metals  to  furnish  all 
the  currency  needed  in  the  most  extended  commerce,  it  is 
plainly  false  in  theory.  We  have  already  shown,  that,  as 
the  currency  is  increased,  prices  advance ;  so  that  money 
becomes  no  more  plenty  by  augmenting  its  quantity. 

John  Stuart  Mill  says:  "The  uses  of  money  are  in  no 
respect  promoted  by  increasing  the  quantity  which  exists 
and  circulates  in  a  country,  the  service  it  performs  being 
as  well  rendered  by  a  small  $s  by  a  large  aggregate  amount. 
Two  million  quarters  of  corn  will  not  feed  so  many  persons 
as  four  millions ;  but  two  million  pounds  sterling  will  carry 
on  as  much  traffic,  will  buy  and  sell  as  many  commodities 
as  four  millions,  though  at  lower  prices." 

Sufficient  has  been  said  in  refutation  of  a  fallacy,  which, 
though  popular,  is  really  not  entitled  to  much  consideration. 

Fallacy  5th.  That  mixed-currency  banks  are  particularly 
favorable  to  those  who  have  little  capital,  and  must,  of  ne- 
cessity, depend  upon  credit,  since  they  increase  the  facilities 
for  obtaining  capital. 


216  EXCITANGE.  [BOOK    III. 

Whatever  impairs  credit  and  increases  the  risk  of  loaning 
must  he  unfavorahle  to  those  who  most  need  to  borrow. 
Other  things  being  equal,  it  must  be  easier  to  get  credit  in 
a  community  where  only  one  in  twenty  fails  than  where 
one  in  five  fails;  the  less  the  risk,  the  less  the  hesitation  in 
giving  credit.  Now,  does  the  credit  money  of  a  mixed  cur- 
rency diminish  the  risk  of  general  credits?  Far  from  it. 
Comnion-sense  teaches,  and  statistics  prove,  that  the  haz- 
ards of  credit  must  be  just  in  proportion  to  the  credit  money 
of  any  country.  Instead,  therefore,  of  being  favorable,  it  is 
adverse  to  all  persons  wanting  the  use  of  capital.  The  haz- 
ards of  credit  in  the  United  States  are  at  least  four  times  as 
great  as  they  would  be  under  a  value  money  currency. 

The  more  credits  are  extended,  the  more  difficult  it  is  for 
persons  of  limited  means  to  do  any  thing  on  their  own  ac- 
count. Unless  an  interest  can  be  secured  in  some  large 
banking  institution,  business  on  a  large  scale  is  impossible, 
because  the  manufacturer  or  dealer  will  give  long  credit,  if 
he  can  get  credit  at  the  banks.  If  it  be  true,  as  we  have 
seen,  that  introducing  credit  into  the  currency  extends  all 
the  indebtedness  of  the  country,  this  must  operate  to  the 
disadvantage  of  all  men  of  limited  capital. 

That  all  this  is  quite  unnecessary,  is  proved  by  the  con- 
dition of  things  in  the  years  1863  to  1865,  when  no  credits 
were  given,  all  transactions  being  essentially  on  immediate 
payment.  The  war  effected  this,  by  destroying  all  confi- 
dence ;  but  the  fact  that  the  business  of  the  country  was 
carried  on  without  extensive  credits  shows  that  such  were 
always  unnecessary. 

A  mixed  currency,  far  from  being  advantageous  to  persons 
needing  credit,  has  an  entirely  opposite  influence,  and  is 
constantly  tending  to  reduce  the  number  of  those  who  can 
obtain  sufficient  to  participate  in  the  profits  of  business. 

Fallacy  6th.  That,  without  a  mixed  currency,  banks  could 
not  exist,  and  all  the  advantages  now  derived  from  them 
would  be  lost. 


CHAP.  XII.]  MIXED-CURRENCY  FALLACIES.  217 

Such  is  the  general  impression  among  the  masses  of  the 
people.  Propose  to  them  the  expulsion  of  the  credit  ele- 
ment; that  is,  to  forbid  the  issue  of  notes  beyond  the  specie 
in  hand :  the  reply  comes  at  once  that  there  would  be  no 
object  in  banking,  and  we  should  have  no  banks. 

This  view  of  the  matter  arises  from  the  fact  that  we  have 
never  had  in  the  United  States  any  banks  that  did  not  man- 
ufacture currency  out  of  their  credit.  "We  have  therefore 
come  to  regard  the  two  things  as  inseparable.  But  this  is 
an  entirely  erroneous  view.  Banking  and  currency-making 
are  two  perfectly  distinct  functions,  though  here  uniformly 
united. 

Banking  may  be  carried  on  to  any  degree,  and  in  the 
most  profitable  manner,  without  the  issue  of  a  single  bank- 
note. This  is  done  in  Great  Britain,  to  a  wonderful  extent, 
by  joint-stock  and  private  banks.  Only  a  very  small  pro- 
portion of  all  the  banks  in  the  United  Kingdom  issue  their 
own  notes;  yet  they  make  dividends  so  large  as  to  aston- 
ish us. 

As  an  illustration  of  this  species  of  banking,  we  mention 
the  fact,  that,  while  the  Bank  of  England,  with  a  capital  of 
fourteen  millions,  has  deposits,  public  and  private,  of  but 
twenty  millions  on  an  average,  the  three  principal  banks 
of  London,  with  an  aggregate  paid-up  capital  of  only 
£2,320,000,  have  on  deposit  £46,158,105;  and  that,  while 
the  Bank  of  England  declares  a  dividend  of  about  six  or 
seven  per  cent,  these  banks  make  an  average  profit  of  about 
thirty  per  cent,  and  furnish  the  commercial  and  manufac- 
turing interest  a  much  larger  amount  of  capital  than  the 
Bank  of  England  itself.  And  yet  they  manufacture  not  a 
dollar  of  currency.  We  present  the  following  statement  of 
their  condition :  — 

Net  profits         Percentage 
Paid-up  capitnl.  Deposits.  for  6  mos.  per  ami. 

London  and  Westminster     £1,000,000  £15,629,095  £147,816  29.56 


Union 720,000  16,472,279  114,324  38.11 

London  Joint  Stock    .     .  600,000  14,056,731  80,573  26.86 

£2,320,000  £46,158,005  £342,713 


218  EXCHANGE.  [BOOK   III. 

Of  all  kinds  of  banks,  with  their  branches,  there  are,  in 
the  United  Kingdom,  about  five  thousand,  a  small  portion 
only  of  them  being  banks  of  issue.  Yet,  as  a  general  rule, 
all  make  large  dividends.  Such  as  are  regarded  as  "  suc- 
cessful," divide  from  fifteen  to  twenty-five  per  cent.  It  is  a 
curious  and  instructive  fact,  that,  while  the  average  rate  of 
interest  is  there  only  half  as  great  as  in  the  United  States, 
the  bank  dividends  are  much  greater.  The  largest  divi- 
dends arc  made  by  those  banks  which  issue  no  notes  what- 
ever. 

This  fact  gives  sufficient  proof,  if  any  were  needed,  that, 
in  order  to  make  large  dividends,  it  is  not  necessary  for  a 
well-established,  well-managed  bank  to  manufacture  cur- 
rency. 

Banks  belong  to  civilization.  A  bank  is  an  institution 
intrusted  by  one  class  of  persons  with  money  to  loan 
another  class.  The  existence  of  such  institutions  implies 
the  existence  of  capital  and  confidence ;  and  these  indicate 
culture  and  social  elevation.  Banks  are  labor-saving  ma- 
chines, of  vast  power  and  utility.  Their  legitimate  purpose 
is  simply  to  facilitate  the  use  of  money,  to  make  it  more 
effective  in  exchange,  to  give  it  greater  activity  in  circu- 
lation. This  they  accomplish.  A  large  amount  of  capital 
is  collected  in  one  building,  fitted  especially  for  the  purpose. 
This  gives  greater  security  and  convenience  than  if  the  same 
were  scattered  abroad  in  many  hands,  and  accidental  places 
of  keeping.  The  lender  knows  where  to  go  to  dispose  of 
his  surplus  funds ;  the  borrower,  where  such  fund's  can  be 
obtained.  The  bank  introduces  these  parties,  who  otherwise 
would  probably  remain  unknown  to  each  other. 

No  well-informed  man  can  be  opposed  to  banking  insti 
tutions  conducted  in  a  proper  manner.  It  would  be  as 
reasonable  to  object  to  railroads. 

Banks,  until  a  comparatively  recent  period,  were  as  harm- 
less as  they  were  useful.  They  did  no  injury  to  any  intei  • 
est,  but   benefited   all.     When  confined  to  the  loaning  of 


CHAP.  XII.]  MIXED-CUKRENCY   FALLACIES.  219 

actual  values,  to  the  negotiation  and  collection  of  notes  and 
bills  of  exchange,  and  to  the  reception  and  transfer  of 
money,  they  performed  an  immense  service  to  the  world. 

But  when  they  undertook,  not  only  to  loan  money,  but  to 
make  it,  to  issue  credit  in  the  form  of  notes  promising  value, 
their  character  was  changed. 

The  Bank  of  Hamburg,  which  has  existed  since  1619, 
never  promised  a  dollar  which  it  did  not  hold  in  its  vaults. 
It  never  expanded  the  currency,  and  therefore  never  had 
occasion  to  contract  it.  It  has  never  suspended  specie  pay- 
ments for  an  hour,*  and,  while  so  conducted,  never  will.  It 
has  created  no  panic,  and  has  in  no  way  disturbed  the  busi- 
ness of  the  city.  It  has  conferred  incalculable  benefits  on 
European  commerce,  while  contributing  steadily  to  the 
growth  and  prosperity  of  Hamburg. 

Confining  itself  to  the  loan  of  its  capital  and  of  money 
actually  left  on  deposit,  to  the  transfer  of  surplus  funds, 
and  to  the  negotiation  of  commercial  paper,  a  bank  can,  if 
honestly  and  ably  conducted,  make  good  dividends,  and 
perform  valuable  services  for  the  community,  and  furnish 
the  public  with  all  the  notes  their  convenience  and  that 
of  the  banks  require. 

Fallacy  1th.  That  a  mixed  currency  can  be  effectually 
regulated  by  law. 

Many  of  the  mischiefs  arising  from  a  mixed  currency  are 
so  obvious  that  all  persons  desire  their  removal,  and  nat- 
urally resort  to  legal  enactments  for  that  purpose.  The 
statute-books  of  every  State  in  the  American  Union  contain 
laws  for  the  regulation  of  mixed-currency  banks.  Commis- 
sioners have  been  appointed  in  many  States,  and  a  Bureau 
of  Currency  established.  Ingenuity  has  been  burdened  to 
devise  regulations  by  which  these  evils  may  be  removed  or 
modified,  —  with  what  success  ? 

There  is  but  one  defect  in  a  mixed  currency ;  and  that  is, 
it  wants  the  element  of  value.     There  is  no  sufficient  rem- 

*  Various  reports  in  1857  to  the  contrary  notwithstanding 


220  EXCHANGE.  [BOOK   m. 

edy,  but  to  supply  this,  by  providing  that  banks  shall  issue 
no  promises  of  their  own  for  which  they  have  not  in  posses- 
sion the  actual  values  they  promise.  But  this  would  be  to 
change  the  whole  system,  to  make  the  currency  mercantile, 
and  to  cut  off  all  the  profits  arising  from  the  issue  of  bank 
debt  as  currency.  The  only  complete  remedy,  then,  is  res- 
toration; that  is,  a  return  to  the  original  design  and  purpose 
of  banking. 

Fallacy  8th.  That  it  is  for  the  interest  of  the  public,  that 
the  banks,  in  times  of  panic  or  stringency,  should  be  ena- 
bled to  "  stave  off"  suspension. 

On  the  contrary,  this  can  be  obviated  only  to  the  misfor- 
tune of  the  business  community.  A  severe  pressure  for 
money,  as  in  the  United  States  in  1847,  1851,  and  1854,  is 
experienced,  and  yet  the  banks  do  not  suspend.  But  how 
do  they  avoid  it  ?  By  throwing  the  strain  upon  the  mercan- 
tile and  business  community.  This  they  can  always  do  to 
a  limited  extent,  and  thus  maintain  their  own  credit ;  but  it 
is  done  at  an  enormous  amount  of  embarrassment  and  loss 
to  all  engaged  in  business  affairs. 

The  banks  may  not  only  escape  damage,  but  may  even 
profit  very  much  by  a  pressure,  if  it  does  not  come  to  be  a 
panic  ;  for  it  greatly  enhances  the  rate  of  interest.  The  rate 
of  interest  in  the  Bank  of  England,  from  1848  to  1856,  did 
not  average  three  and  a  half  per  cent.  In  1857,  when  there 
was  a  severe  pressure,  the  bank  was  able  to  obtain  ten  per 
cent.     It  had  a  harvest  of  profit. 

The  banks  of  the  United  States  had  a  similar  opportunity 
in  1847,  when  the  price  of  money  "  in  the  street"  (for  we 
have  no  means  of  knowing  what  it  was  on  an  average  in 
bank)  was  up  to  eighteen  per  cent ;  in  1851,  when  it  went 
up  to  sixteen :  and  in  1854,  when  it  rose  to  eighteen.  In 
all  these  cases,  the  banks  profited  by  the  distress  they  had 
themselves  created ;  but,  in  1857,  the  pressure  became  over- 
whelming, and,  after  having  run  the  street  rate  up  to  three 
per  cent  per  month,  they  suspended  payment. 


CHAP.  XII.]  MIXED-CURRENCY   FALLACIES.  221 

If  it  were  necessary,  we  might  multiply  instances  from 
the  history  of  the  mixed  currency  of  the  United  States  and 
England  of  the  same  kind.  A  semi-revulsion  is  sure  to 
take  place,  under  such  a  currency,  every  three  or  four  years, 
and  a  general  break-down  once  in  about  nine  or  ten. 

The  greater  strength  of  the  British  banks,  together  with 
the  temporary  suspension  of  the  Bank  Act  of  1844,  ena- 
bles the  Bank  of  England  to  throw  the  sacrifices  incident  to 
a  great  pressure  more  entirely  upon  the  public  than  can  be 
done  in  this  country.  Indeed,  since  the  law  of  1844  just 
referred  to,  the  bank  has  increased  its  average  rate  of  in- 
terest, as  we  have  seen,  very  much. 

Practically,  mixed-currency  banks  expand  as  often  and  as 
much  as  possible ;  and,  when  the  re-action  comes,  hold  on 
to  specie  payments  and  a  high  rate  of  interest,  until  the 
bankruptcy  of  their  debtors  begins  to  be  so  alarming  as  to 
endanger  their  own  securities. 

They  then  suspend,  allow  their  debtors  to  pay  up  in  the 
notes  they  cannot  redeem  in  specie,  and  thus  settle  the  in- 
debtedness of  themselves  and  the  public.  There  is  no  plan 
or  design  to  do  this ;  but  such  is  the  natural  result,  and,  on 
the  whole,  a  highly  satisfactory  one  to  the  banking  interest. 

Fallacy  9th.  That,  whatever  the  effect  upon  other  classes, 
bank  stockholders  at  least  are  made  richer  by  an  expansion 
of  the  currency. 

That  this  is  not  universally  true  will  appear  on  exam- 
ination. 

An  expansion  of  the  currency  raises  prices :  that  we  take 
to  be  indisputable.  If  so,  the  stockholder  may  be  made 
richer  or  poorer  by  the  cause  that  increases  his  bank 
dividends. 

For  example :    suppose  he  has  an  income  from  various 

sources  of $5,000 

And  from  bank  stock 1,000 


Total  income $6,000 


222  exchange,  [book  m. 

In  consequence  of  an  increase  of  circulation  by  the  banks, 
he  gets  an  increase  of  $500,  equal  to  fifty  per  cent  on  his 
bank  dividends,  making  bis  whole  income  $6,500.  But 
prices  and  commodities  have  advanced  twenty-five  per  cent 
in  consequence  of  the  inflation.  What  he  would  have 
bought  before  for  $6,000,  now  costs  him  $7,500.  The  re- 
sult, then,  is,  that  the  bank  stockholder  has  gained  $500  in 
his  dividends,  and  lost  $1,500  in  his  purchases  ;  so  that 
he  is  actually  $1,000  poorer,  reckoning  the  real  satisfactions 
or  commodities,  &c,  which  he  obtains  from  his  income. 

There  is  nothing  fictitious  in  this  statement.  The  natural 
and  certain  operation  of  an  inflation  of  currency  affects  in 
just  this  way  all  who  hold  bank  stocks,  but  have  the  main 
part  of  their  income  from  other  sources.  But  we  can  sup- 
pose a  case  in  which  the  stockholder  would  gain  by  ex- 
pansion. 

For  example :  he  has  an  income  from  bank  stock  of    .     .     $4,000 
From  salary 1,000 

Total  income $5,000 

Now,  by  expansion,  his  dividends  are  increased  fifty  per 
cent,  as  before  ;  and  his  income  stands :  — 

From  bank  stock $6,000 

From  salary 1,000 

$7,000 

Prices  have  advanced,  as  before,  twenty-five  per  cent,  so 
that  what  he  could  have  bought  for  $5,000,  now  costs  him 
$6,250  ;  but,  since  his  income  has  increased  to  $7,000,  he  is 
a  gainer  by  $750. 

Those  two  cases  present,  it  is  believed,  a  fair  illustration 
of  the  effects  of  an  increase  of  dividends  upon  bank  stocks 
occasioned  by  an  inflation  of  the  currency.  It  is  seen,  that, 
if  a  man's  income  is  derived  mainly  from  such  sources,  he 
may  gain  by  an  increase  of  his  dividends,  notwithstanding 
the  rise  in  price.     But  few  persons  are  so  situated.     Nearly 


CHAP.  Xn.J  MIXED-CURRENCY   FALLACIES.  223 

all  capitalists  have  a  variety  of  investments,  bank  stock 
being  only  one  of  them ;  so  that,  to  the  great  mass  of  stock- 
holders even,  the  gain  by  increased  dividends  is  more  than 
counterbalanced  by  the  loss  from  enhanced  prices. 

Who  gains  by  fictitious  currency  ? 

But  it  may  be  asked,  if  stockholders  do  not  gain  by  bank 
expansions,  who  does  ?  There  is  an  increase  of  dividends : 
who  gets  the  advantage  ? 

This  inquiry  brings  us  face  to  face  with  one  of  the  prime 
mysteries  of  currency,  and,  indeed,  of  political  economy. 
"  Who  gains  by  fictitious  currency  ? "  Before  answering 
this,  we  will  ask,  What  is  gained  by  a  currency  not  con- 
sisting of  actual  value  ?  We  answer,  nothing  but  price. 
Prices  are  changed  by  it.  Tallies  are  not  created :  they 
remain  the  same.  By  the  change  in  the  standard  or 
measure  from  a  value  to  a  mixed  currency,  prices  no  longer 
accurately  determine  values.  Prices  are  increased.  Those 
who  hold  commodities  while  prices  are  advancing,  gain  by 
such  an  advance.  Debtors  may  discharge  their  obligations 
with  less  value.  Speculators  may  make  favorable  opera- 
tions. The  value  of  every  commodity  has  been  interfered 
with  ;  the  integrity  of  every  contract  to  pay  value  has  been 
impaired.  Some  are  constantly  gaining ;  others,  losing : 
both  parties,  it  may  be,  unconscious  of  the  cause  of  such 
prosperity  or  adversity.  "  Times  "  are  said  to  be  good  or 
bad,  as  men  gain  without  earning,  or  lose  without  a  fault. 
Here  we  have  the  answers  of  the  questions,  —  What  is 
gained  by  a  mixed  currency  ?     Who  gains  by  it  ? 

Such  is  the  "  consummation"  of  mixed  currency.  "  It  is 
a  grand  system  of  insidious  swindling."  So  said  "  Hard- 
castle  "  (who  was  no  other  than  Mr.  Page  of  the  Bank  of 
England)  forty  years  ago ;  and  what  that  shrewd  observer 
then  discovered  is  apparent  now  to  all  who  enter  into  a  full 
examination  of  the  subject.* 

*  Richard  Cobden  repeated  this  remark  of  Mr.  Page  to  the  author  at 
Manchester,  more  than  twenty  years  since,  with  his  emphatic  approval. 


224  EXCHANGE.  [iSOOK   III. 


CHAPTER  XIII. 

IV.      MERCANTILE    CURRENCY. 

We  have  thus  far  examined  three  different  kinds  of  cur- 
rency. 1st,  Money,  consisting  of  the  precious  metals :  this 
we  have  found  to  be  admirably  adapted  to  the  wants  of 
trade,  except  that,  for  large  exchanges,  it  is  too  cumber- 
some, requiring  much  labor  and  time  in  use.  2d,  Incon- 
vertible paper,  or  credit  currency,  which,  we  have  seen,  never 
has  been,  and  in  the  nature  of  things  never  can  be  kept  at 
par  with  coin,  and  is  therefore  highly  injurious  when  intro- 
duced into  commerce.  3d,  A  mixed  currency,  or  partly 
convertible  paper,  which,  as  it  is  constantly  varying  in 
quality  and  quantity,  cannot  be  relied  on  as  a  medium  of 
exchange  or  a  standard  of  value. 

We  now  come  to  the  consideration  of  a  mercantile,  or 
substitute  currency. 

It  is  quite  apparent  that  a  currency  is  needed  which  shall 
combine  all  the  advantages  of  the  two  kinds  first  mentioned, 
without  the  disadvantages  which  we  have  seen  to  be  insep- 
arable from  the  third.  We  want  the  reliability  of  coin  and 
the  convenience  of  paper.  With  these  perfectly  united, 
there  is  nothing  more  to  desire.  We  have  no  occasion  to 
increase  the  currency  beyond  its  natural  volume,  because 
that  would  impair  the  standard  of  value.  We  wish  only  to 
have  so  much  currency,  and  of  such  a  kind,  as  the  laws  of 
trade  demand,  and,  if  undisturbed,  will  always  secure. 

Is  such  a  currency  practicable  ? 

In  answering  this  question,  we  remark  that  it  would  not 
be  an  entire  novelty,  since  experiments  of  this  character  have 
been  made  most  successfully  upon  a  large  scale,  and  extend- 
ing over  several  centuries. 


CHAP.  XIII.]  MERCANTILE   CURRENCY.  225 


THE   FIRST   SUBSTITUTE   CURRENCY   ESTABLISHED. 

Ill  the  early  part  of  the  fourteenth  century,  the  Bank  of 
Genoa,  or  House  of  St.  George,  was  established,  especially 
for  the  management  of  the  public  debt.  But,  in  addition, 
the  bank  performed  all  such  services  as  were  required  by  the 
existing  wants  of  trade,  at  a  period  when  Genoa  was  com- 
mercially the  centre  of  Europe.  Of  course,  its  operations 
were  on  a  gigantic  scale.  Its  affairs  were  conducted  with 
the  greatest  skill  and  fidelity,  and  were  continued  from  its 
foundation  up  to  the  time  Genoa  was  united  to  the  French 
Empire,  "  when  the  bank  was  abolished,  and  the  rentes, 
3,400,000  Genoese  lire,  which  they  owed  their  creditors, 
were  transferred  to  the  account-books  of  France." 

This  bank,  like  the  Bank  of  England,  had  its  stock  in- 
vested in  the  public  debt ;  but  it  received  deposits  of  gold 
and  silver,  for  which  it  gave  credit  to  the  depositor.  These 
deposits,  being  easily  transferable,  were  employed  largely  in 
commercial  transactions. 

The  bank  also  issued  bills  extensively ;  but  "  these  bills  and 
deposits  represented  coins  of  full  weight  and  value,  and  were 
payable  on  demand  in  such  corns."  The  common  currency 
of  Genoa,  for  retail  business  and  minor  transactions,  was 
coin. 

Thus  the  Genoese  were  furnished  with  a  currency  per- 
fectly adapted  to  their  wants.  It  had  all  the  reliability 
of  specie,  with  the  convenience  of  a  paper  circulation,  and 
conferred  immense  advantages  upon  the  trade  of  the  city  for 
more  than  five  hundred  years.* 

The  Bank  of  Amsterdam  was  established  in  1609  as  a 
bank  of  deposit,  receiving  gold  and  silver  coins  of  all  denom- 
inations and  all  nationalities,  ascertaining  their  exact  value, 
and  passing  the  amount  to  the  credit  of  the  depositor,  or 

*  For  an  interesting  account  of  this  bank,  see  "  The  Ways  and  Means  of 
Payment"  (p.  311  et  seq.),  by  Stephen  Colwell,  of  Philadelphia 

15 


226  EXCHANGE.  [BOOK   III. 

giving  him  a  receipt  (recipisse)  for  the  same.  These  re- 
ceipts passed  from  hand  to  hand,  and  formed  a  circulating 
medium  for  large  monetary  transactions. 

The  Bank  of  Hamburg  was  established  in  1619.  Like 
tint  of  Amsterdam,  it  is  a  bank  of  deposit ;  and  all  payments 
are  made  by  checks  in  the  transfer  of  receipts.  It  exists  at 
the  present  day.  It  never  promises  more  coin  than  it  has 
in  its  vaults.  It  is  under  the  guardianship  and  guaranty 
of  the  city.  It  has  never  deranged  trade  by  contraction  or 
expansion.  It  has  always  been  found  reliable.  It  has  con- 
tributed greatly  to  the  prosperity  of  the  city,  and  the  conve- 
nience of  all  connected  with  Hamburg  in  trade.  At  the 
same  time,  it  has  paid  a  considerable  and  constant  revenue 
to  the  city,  a  small  agio  or  premium  being  charged  on  all 
deposits. 

We  have  referred  to  these  individual  banks,  not  to  give  a 
history  of  their  operations,  but  to  show  that  the  essential 
principle  of  a  substitute  currency  has  been  long  recognized, 
and  thoroughly  tried  in  practice.  The  Bank  of  Genoa  seems 
to  have  developed  this  most  fully.  Yet  none  of  them  would 
afford  a  perfect  model  for  the  present  age. 

To  keep  gold  and  silver  coin  in  bank,  while  they  are  per- 
forming all  their  functions  outside,  with  the  perfect  accu- 
racy and  vastly  augmented  force,  —  this  is  what  a  mercantile 
currency  seeks  to  realize.  It  is  beyond  doubt  that  this  can 
be  more  effectually  done  in  the  present,  than  in  any  preced- 
ing age,  since  confidence  and  intelligence  are  more  general 
and  controlling. 

England  affords  the  best  illustration  of  the  necessity  for 
such  a  currency  at  the  present  day,  when  the  commerce  of 
the  world  is  perhaps  one  hundred  times  greater  than  when 
Genoa  was  its  chief  mart.  The  monetary  condition  of  Eng- 
land is  peculiarly  appropriate  in  this  connection,  because 
its  present  currency  is  probably  the  best  in  quality  of  all 
the  mixed  currencies,  and  one  with  which  the  public  gener- 
ally are  well  acquainted.     Yet,  notwithstanding  this  supe- 


CHAP.  XIII.]  MERCANTILE   CURRENCY.  227 

riority,  we  find  the  currency,  on  which  depend  the  trade  and 
commerce  of  the  British  Empire,  in  a  state  of  continual  fluc- 
tuation, a  matter  of  unceasing  solicitude :  the  bank  reserve, 
by  which  its  discounts  must  be  governed,  varying  from  ten 
millions  in  1846,  to  one  and  a  half  millions  in  1847  ; 
twelve  and  a  half  millions  in  1849,  to  four  millions  in  1854 ; 
one  and  a  half  millions  in  1857,  to  thirteen  and  a  half  mil- 
lions in  1858 ;  with  corresponding  variations  in  the  rates 
of  interest,  as  seen  in  our  Diagram  No.  7. 

Why  all  this  fluctuation  and  anxiety  ?  Why  this  constant 
watching  of  the  amount  of  bullion  in  bank  ?  Why  this 
nervous  solicitude  about* the  reserve? 

There  is  only  one  reason ;  and  that  is,  that  the  Bank  of 
England  has  issued  from  ten  to  fourteen  millions  sterling 
of  notes,  for  which  it  holds  no  specie !  That  is  all  the  diffi- 
culty. It  has  disturbed  the  laws  of  value,  by  issuing  that  as 
money  which  had  only  the  promise  of  value  ;  and,  conse- 
quently, has  expelled  the  actual  value  from  the  country  in 
which  it  was  needed. 

And  what  does  the  Bank  of  England  gain  by  all  this  ? 
Why,  the  interest  upon  all  the  excess  of  its  notes  over  the 
bullion  in  bank ;  that  is,  if  its  notes  are  twenty  millions,  and 
it  holds  eight  millions  of  specie,  then  on  twelve  millions  it 
obtains  interest,  which,  at  say  four  per  cent,  as  an  average, 
is  equal  to  four  hundred  and  eighty  thousand  pounds  per 
annum.  So,  then,  it  is  for  this  paltry  consideration  that  the 
currency  of  Great  Britain  is  kept  in  constant  fluctuation, 
and  the  business  community  in  continual  anxiety.  This 
gain  is  equivalent  to  about  fourpence  per  head  for  the  pop- 
ulation of  the  nation.  Yet  for  this  the  public  must,  on  an 
average,  suffer  to  the  amount  of  many  millions  per  annum. 

The  people  of  the  United  States,  having  a  much  larger 
proportion  of  the  credit  element  in  their  currency,  suffer 
still  more. 

The  remedy  for  all  these  evils  is  a  very  simple  one,  and 
perfectly  feasible  whenever  government  sees  fit  to  make  tho 


228  EXCHANGE.  [BOOK   III. 

needful  enactments.  Not  only  so,  but,  from  the  nature  of 
the  case,  there  need  be  no  violent  change.  The  experiment 
may  be  made  as  cautiously  as  the  most  conservative  can 
desire. 

1  f  it  be  assumed  that  the  banks  of  the  United  States  have 
usually  twenty  per  cent  of  specie,  then,  if  Congress  should 
require  an  annual  addition,  to  this  proportion,  of  ten  per 
cent,  it  would  require  a  period  of  eight  years  to  bring  the 
amount  up  to  the  proposed  limit.  That  it  would  secure  one 
of  the  grandest  results  to  all  the  great  industrial  and  com- 
mercial interests  of  society  ever  known,  there  cannot  be  the 
slightest  doubt. 

If  the  principles  we  have  previously  laid  down,  and  the 
practical  results  which  follow,  are  such  as  we  have  stated, 
then  no  one  nation  need  to  hesitate  in  making  this  experi- 
ment for  fear  that  other  nations  may  not  follow  their  exam- 
ple ;  for  the  community  which  has  the  soundest  currency 
will,  other  things  equal,  have  the  most  profitable  industry 
and  the  most  advantageous  commerce. 

With  such  a  currency,  as  there  will  be  no  inducement  to 
issue  notes  further  than  convenience  demands,  none  of  a 
less  denomination  than  ten  dollars  will  probably  be  issued. 

The  Bank  of  England  issues,  we  must  bear  in  mind,  no 
notes  less  than  five  pounds  (twenty-five  dollars).  In  Scot- 
land and  Ireland,  notes  are  circulated  as  low  as  one  pound ; 
and  it  is  found  that  two-thirds  of  their  circulation  consists 
of  these  notes.  Yet  there  is  no  more  occasion  for  one-pound 
notes  in  Scotland  and  Ireland  than  England.  The  only  re- 
sult is,  that  the  bankers  make  profits  on  their  credit  issued 
in  those  notes,  which  the  people  pay  for,  but  for  which  they 
receive  no  benefit  whatever ;  while  all  their  industrial  and 
trading  interests  are  rendered  more  unstable  and  fluctuating 
by  the  more  sensitive  currency. 

In  Massachusetts,  where  notes  are  issued  as  low  as  one 
dollar,  it  has  been  found  from  statistical  returns  that  more 
than  twenty  per  cent  of  the  whole  circulation  was  of  notes 

\ 


CHAP.  XIII.]  MERCANTILE  CURRENCY.  229 

under  five  dollars.  The  exclusion  of  these  notes  alone 
would  reduce  the  credit  element  one-fifth.  If  all  under  ten 
were  excluded,  the  paper  circulation  would  be  reduced  at. 
least  as  much  more.  If  such  a  result  would  follow,  then, 
taking  the  whole  currency  of  the  United  States  as  it  was  in 
1857,  when  the  circulation  was  largest,  and  amounted  to 
two  hundred  and  fourteen  millions,  if  we  deduct  from  that 
amount  forty  per  cent,  equal  to  eighty-five  million  and  six 
hundred  thousand  dollars,  we  shall  have  near  one  hundred 
and  twenty-eight  millions  as  the  paper  currency  of  the  coun- 
try, and  that  would  represent  an  equal  amount  of  gold  in 
the  banks ;  while  all  the  rest  of  the  currency  of  the  nation 
would  be  in  specie,  in  the  hands  of  the  people.  But  there 
need  be  no  legal  restriction  whatever  upon  the  issue  of  such 
a  currency,  and  it  matters  not  how  voluminous  it  may  be ; 
since  it  will  be  composed  in  fact  of  value  money,  will 
obey  the  laws  of  value,  and,  of  course,  will  regulate  itself. 
There  would  then  be  no  expansions  or  contractions,  except 
from  the  legitimate  operations  of  trade ;  and  the  currency 
of  the  nation  would  be  perfectly  sound.  Notes  may  be  safely 
issued,  of  any  denominations,  and  to  any  amount ;  still  it 
would  be  desirable  that  no  small  notes  should  be  put  out, 
because  it  is  better  that  the  people  should  have  the  coin,  so 
far  as  practicable  and  convenient,  in  their  own  possession, 
rather  than  that  it  should  be  needlessly  accumulated  in 
banks,  where  it  would  be  more  exposed  to  danger  in  case  of 
a  popular  outbreak,  or  a  financial  coup  d'etat. 

That  legitimate  banking  may  be  made  sufficiently  profit- 
able under  such  a  system,  we  have  seen  in  the  case  of  the 
joint-stock  banks  of  England.  All  banks,  like  them,  should 
be  authorized  to  receive  deposits,  and  allow  such  an  interest 
upon  them  as  they  might  choose  to  pay.  If  there  were  no 
issue  of  promises  as  currency,  which  in  the  nature  of  the 
case  it  was  impossible  for  them  to  make  good,  there  would 
be  no  danger  in  allowing  them  to  borrow  and  loan  money 
on   any  terms   they  pleased.      To  attempt  to  control  the 


2Sfl  EXCHANGE.  [HOOK   HI. 

operations  of  such  banks  would  be  as  useless  and  absurd 
as  to  attempt  to  regulate  the  trade  in  flour  or  cotton. 

There  would  be  no  occasion  to  enact  that  such  a  currency 
should  be  received  in  payment  of  dues.  It  would  take  care 
of  its  own  reputation.  It  would  be  good  as  gold,  and  easier 
in  use ;  and  it  therefore  would  circulate  itself.  Of  such  a 
currency  it  might  be  said,  in  the  language  of  Mr.  Burke, 
"  It  is  of  value  in  commerce,  because  in  law  it  is  of  none." 

The  transition  from  an  unreliable  currency,  like  that 
of  the  United  States  and  England,  to  a  sound  mercantile 
currency,  can  be  made  so  gradually  as  not  for  a  moment  to 
retard  or  interrupt  the  course  of  business.  It  would  only 
be  necessary  to  require  that  the  proportion  of  specie  to  cir- 
culation shall  be  gradually  increased  from  time  to  time,  until 
the  final  exclusion  of  credit,  as  an  element  of  the  currency, 
shall  be  effected. 

If,  in  carrying  such  a  measure  into  practical  operation,  it 
should  appear  that  there  were  banks  which  could  not  make 
good  dividends,  such  institutions  would  be  discontinued  of 
their  own  choice,  as  not  actually  required  by  the  wants 
of  the  business  community.  Their  capital  would  be  paid 
back  without  any  essential  loss  to  the  stockholders.  Those 
who  were  concerned  in  their  management  would  of  course 
be  obliged  to  seek  other  employments,  more  beneficial  to 
the  country,  and  perhaps  equally  so  to  themselves.  The 
amount  of  disturbance  so  produced  would  not  exceed  that 
occasioned,  many  times,  by  the  invention  of  a  new  descrip- 
tion of  machinery. 

Much  has  been  said,  at  different  times,  of  the  desirable- 
ness of  free  banking.  Of  the  propriety  and  rightfulness 
of  allowing  any  person  who  chooses  to  carry  on  banking,  as 
freely  as  farming  or  any  other  branch  of  business,  there  can 
be  no  doubt.  But  it  is  not,  and  can  never  be,  expedient  or 
right  to  authorize  by  law  the  universal  manufacture  of  cur- 
rency. While  banking,  as  at  present,  means  the  issuing  of 
inconvertible  paper,  the  more  it  is  guarded  and  restricted 


CHAP.  XIII.]  MERCANTILE   CURRENCY.  231 

the  better.  But  when  such  paper  is  forbidden,  and  only 
notes  equivalent  to  so  much  coin  are  issued,  banking  may 
be  as  free  as  brokerage.  The  only  thing  to  be  assured 
would  be,  that  no  issues  should  be  made  except  upon  specie 
in  hand.  With  this  restriction,  it  is  plain  that  no  banker 
would  wish  to  issue  a  circulation,  unless  for  his  own  con- 
venience in  transacting  business.  But,  in  truth,  there  is 
not  the  slightest  reason  why  any  banker,  making  loans, 
should  engage  in  the  manufacture  of  currency.  It  no  more 
appertains  to  his  vocation  than  to  that  of  the  merchant. 
On  the  other  hand,  there  is  the  most  manifest  impropriety 
and  danger  to  himself  and  the  public  in  his  doing  so.  His 
business  leads  him,  of  necessity,  to  incur  great  risks ;  and 
this  being  well  known,  as  soon  as  failures  become  frequent, 
as  they  will  when  there  is  a  great  pressure  for  money,  the 
banker  will  be  suspected,  and  his  depositors  begin  to  with- 
draw their  funds,  at  the  very  moment  when  he  is  least  able 
to  spare  them.  All  this  is  inevitable  ;  and  therefore  no  one 
taking  such  risks,  and  exposed  to  such  contingencies,  should 
be  allowed  by  law  to  issue  his  promises  as  money. 

Fortunately,  while  it  is  thus  improper  that  bankers  or 
banking  institutions  should  be  intrusted  with  this  impor- 
tant function,  there  is  not  the  slightest  necessity  for  it. 
Government  very  properly  certifies  to  the  weight  and  fine- 
ness of  the  national  coin  ;  and  it  is  equally  incumbent  upon 
the  government  to  certify  to  the  soundness  of  the  paper 
circulation,  which  convenience  requires  instead  of  the  coin 
itself.  It  should  receive  the  gold  of  the  people,  and  give 
its  certificates  therefor ;  and  those  certificates  (of  all  the 
denominations  required)  would  form  a  circulating  medium, 
perfectly  reliable,  unfluctuating,  and  well  adapted  to  all  the 
purposes  of  trade. 

To  do  this,  government  need  assume  no  new  function  ; 
for  it  already  issues  this  very  kind  of  certificates  for  deposits 
of  specie.  They  are  called  "  gold  notes,"  and  circulate  as 
such.     When  the  specie  standard  is  restored,  all  the  notes 


232 


EXCHANGE. 


[BOOK    III. 


in  circulation  will  be  gold  notes,  government  being  the 
trustee  for  holding  the  coin.  This  would  not  give  any  new 
power  to  the  government,  or  confer  any  additional  political 
influence.  Being  merely  a  trustee,  with  no  patronage  to 
bestow,  no  loans  to  make,  no  accommodations  to  grant, 
there  could  be  no  occasion  to  fear  that  the  currency  of  the 
country  would  be  swayed  by  partisan  politics.* 

Table  X.  —  Characteristics  of  the  Different  Currencies. 


Kind. 
Specie 

Compo- 
sition. 

Circula- 
tion. 

Universal 

Stability. 

CONVE- 
NIENCE 

IN   USE. 

Convert- 
ibility. 

As  a  Stan- 
dard op 
Value. 

Precious 
metals 

Perfectly 
reliable 

Cumber- 
some in 

large 
amounts 

Needs  no 
conversion 

Correct  and 
invariable 

Credit 
Mixed 

Paper  based 
on  credit 

Paper  based 

on  coin 

and  credit 

Paper  based 

wholly  on 

coin 

Local  and 
arbitrary 

Liable  to  be 
continu- 
ally aug- 
mented 

Conve- 
nient 

Conve- 
nient 

Inconverti- 
ble 

Only  par- 
tially con- 
vertible 

False 

Local  and 
conven- 
tional 

Constantly 
Fluctuating 

Defective 
and  vari- 
able 

Mercantile 

Local  and 
conven- 
tional 

Perfectly 
reliable 

Conve- 
nient 

Fully  con- 
vertible 

Correct  and 
invariable 

*  Pages  231  anil  232  have  been  altered  from  the  previous  editions  of  this 
work.  The  change  which  has  been  made  consists  essentially  in  this,  that,  in 
the  previous  editions,  a  certified  currency,  to  be  issued  by  governmental 
authority,  was  only  suggested  as  a  desirable  way  of  securing  a  sound  cur- 
rency ;  while,  in  this,  it  is  insisted  upon  as  the  true  mode  of  attaining  that 
object,  and  that  the  government,  instead  of  banking  institutions,  should  be 
responsible  for  the  character  and  quality  of  the  circulating  medium. 

The  practice  above  referred  to,  receutly  introduced  by  the  United  States 
Treasury,  of  issuing  gold  notes,  that  is,  certificates  of  deposits  of  specie,  has 
shown  the  feasibility  of  the  measure,  and  made  the  public  familiar  with  an 
arrangement  which,  if  carried  out,  would  furnish  the  country  with  a  sound, 
governmental,  certified  currency. 


CHAP.  XIV.]  THE  NATIONAL   CURRENCY.  233 

CHAPTER   XIV. 

THE  NATIONAL   CURRENCY   OP  THE   UNITED   STATES. 

Having  given  an  extended  analysis  of  mixed  currency  as  it 
has  heretofore  existed  in  the  United  States,  it  seems  proper 
that  we  should  notice  the  important  changes  in  that  cur- 
rency soon  to  be  consummated. 

In  the  month  of  February,  1863,  Congress  enacted  a  law 
establishing  a  national  and  uniform  system  of  currency. 
This  has  since  been  put  into  operation  to  such  an  extent 
as  nearly  to  supersede  the  State-bank  system.  We  propose 
now  to  inquire  in  what  respect  it  differs  from,  and  in  what 
respect  it  is  like,  the  latter. 

DIFFERENCES. 

It  differs  from  the  old  system,  in  that,  — 

(1)  Being  created  by  national  instead  of  State  author- 
ity, it  is  entirely  within  the  control  of  Congress,  which, 
according  to  the  last  section  of  the  National  Bank  Act,  may 
at  any  time  "  alter,  amend,  or  repeal  it." 

(2)  It  differs,  in  that  all  the  notes  issued  are  guaranteed 
as  to  their  ultimate  redemjrtion  by  the  government  of  the 
United  States.  This  provision  we  presume  to  be  unique, 
and  without  any  precedent ;  for  the  government  is  not  sim- 
ply a  trustee,  holding  security  for  these  notes,  as  in  New  York 
and  some  other  States,  on  the  safety-fund  principle,  where 
stocks  are  deposited  to  secure  the  circulation,  but  it  abso- 
lutely guarantees  the  final  payment  of  all  these  notes  in 
full. 

Every  banking  association,  on  its  organization,  must 
deliver  to  the  Treasurer  of  the  United  States  the  bonds  of 
the  United  States  bearing  interest,  and  is  then  entitled  to 
receive  from  the  Comptroller  of  the  Currency  circulating 
notes  of  different  denominations,  in  blank,  equal  in  amount 


234  EXCHANGE.  [BOOK   III. 

to  ninety  per  cent  of  the  current  market  value  of  the  bonds 
so  transferred,  but  not  exceeding  the  par  value  of  such 
bonds.  In  case  the  notes  issued  by  the  banks  are  not  paid 
by  them  according  to  promise,  the  Comptroller  may  sell  the 
bonds  left  as  security,  and  redeem  the  notes,  making  up  \r> 
the  holders  of  the  same  any  deficiency  there  may  be  in  the 
securities.  This,  it  will  be  seen,  does  not  secure  the  imme- 
diate convertibility,  but  the  ultimate  redemption,  of  the  cir- 
culation. 

(3)  It  differs,  again,  in  that  these  notes  are  legal  tender 
in  payment  of  "taxes,  excises,  public  lands,  and  all  other 
dues  to  the  United  States,  except  for  duties,"  and  also  are 
legal  tender  by  the  United  States  in  payment  of  all  salaries 
and  other  demands  owing  by  the  United  States,  except  in- 
terest upon  the  public  debt ;  but  they  are  not  a  legal  tender 
as  between  other  parties. 

(4)  Unlike  the  State-bank  notes,  those  of  the  national 
banks,  owing  to  the  provision  just  mentioned,  will  doubtless 
have  a  nearly  uniform  value  in  all  parts  of  the  United  States, 
and  will  therefore  be  generally  acceptable  as  currency. 

(5)  They  differ  also  in  this,  that  the  national  banks  are 
compelled  by  law  to  keep  on  hand  a  certain  proportion  of 
"  lawful  money "  to  their  circulation  and  deposits.  In 
specified  cities,*  this  proportion  is  fixed  at  twenty-five  per 
cent ;  in  all  other  places,  at  fifteen. 

Under  the  State  systems,  there  was  no  legal  obligation  on 
the  banks  to  keep  any  specie  whatever,  except  in  a  few 
cases,  as  in  Louisiana  and  (recently)  in  Massachusetts,  and 
one  or  two  other  States.  But  this  provision  in  regard  to 
the  national  banks  is  practically,  to  a  great  extent,  only  a 
nominal  matter,  because  the  law  provides  that  "  bank  bal- 
ances (due  from  one  bank  to  another)  shall  be  deemed  to  be 

*  These  cities  are  St.  Louis,  Louisville,  Chicago,  Detroit,  Milwaukie, 
New  Orleans,  Cincinnati,  Cleveland,  Pittsburgh,  Baltimore,  Philadelphia, 
Boston,  New  York,  Albany,  Leavenworth,  San  Francisco,  and  Washington 
City. 


CHAP.  XIV.]  THE   NATIONAL   CURRENCY.  235 

lawful  money;"  and  therefore,  as  these  balances  may  be 
created  fictitiously  for  the  very  purpose,  the  clause  obliging 
the  banks  to  keep  a  certain  proportion  of  "  lawful  money  " 
with  which  to  redeem  their  notes  is  nearly  a  nullity.  How- 
ever real  these  bank  balances  may  be,  they  are  not  specie, 
but,  as  we  have  before  shown,  constitute  the  most  danger- 
ous and  explosive  element  of  a  mixed  currency. 

This  is  one  of  the  great  defects  of  the  law,  and,  until  it  is 
removed  by  the  repeal  of  this  provision,  would  alone  make 
the  system  a  dangerous  and  unreliable  one.  Let  us  look 
for  a  moment  at  the  manner  in  which  it  may  operate. 

The  Merchants'  Bank,  Baltimore,  lias  a  balance  against 
the  Chemical  Bank,  New  York,  for  twenty  thousand  dollars. 
The  latter  bank  has  a  balance  against  the  Globe  Bank, 
Boston,  for  twenty  thousand  dollars.  The  Globe  has  a 
balance  against  the  Merchants'  Bank,  Baltimore,  for  twenty 
thousand  dollars.  Here  is  sixty  thousand  dollars  in  this 
circle,  which  is  to  be  reckoned  as  equal  to  so  much  specie, 
or  lawful  money.  But  is  it  so  ?  So  far  from  giving  any 
strength  to  the  currency,  it  has  the  opposite  effect.  The 
object  of  requiring  any  specie,  or  lawful  money,  is,  that  the 
currency  may  be  made  more  reliable ;  but,  if  so,  does  not 
this  provision,  to  a  large  extent,  frustrate  that  object  ?  So 
far  from  giving  strength,  every  banker  knows  that  these 
balances  are  a  cause  of  weakness  and  peril  in  time  of  panic. 

It  can  easily  be  seen  that  a  very  large  proportion  of  the 
nominal  amount  of  specie  or  lawful  money  required  may  be 
held  in  these  "  balances." 

Lastly,  the  national  differ  from  the  old  State  banks  in 
this,  that  the  latter  had  almost  their  entire  capital  to  loan 
to  the  business  community,  while  the  new  banks  will  have 
little  or  none  at  all,  having  loaned  their  capital  at  the  outset 
to  the  government,  by  the  purchase  of  its  bonds.  They 
can,  therefore,  only  loan  their  credit,  in  the  shape  of  circu- 
lation endorsed  by  the  government,  together  with  their 
deposits. 


EXCHANGE.  [UOOK   ID. 


RESEMBLANCES. 

Tlic  new  currency  resembles  that  of  the  old  State  banks, 
in  that  it  will  be  a  mixed  currency,  with  all  its  characteris- 
tics, when  specie  payments  arc  restored. 

(a)  It  will  expand  and  contract  from  the  same  causes, 
and,  so  far  as  can  be  seen,  with  the  same  violence  and  to 
an  equal  extent,  and  consequently  will  be  as  fluctuating  as 
the  currency  it  is  designed  to  supersede,  except  in  so  far 
as  a  larger  proportion  of  specie  shall  be  held  for  its  re- 
demption. 

(b)  It  will  be  an  equally  delusive  and  false  standard  of 
value,  having  in  itself  but  a  small  proportion  of  value. 

(<?)  It  will  raise  prices  and  cause  speculation  when  in 
the  process  of  expansion,  and  depress  prices  and  produce 
bankruptcies  when  contracting. 

(cT)  It  will  create  an  unnatural  extension  of  credits  at 
one  time,  and  a  corresponding  contraction  at  another,  pro- 
ducing great  vibrations  in  the  rate  of  interest. 

(e)  It  will  derange  the  natural  current  of  trade  from 
time  to  time,  causing  an  increase  of  imports  and  a  decrease 
of  exports,  and  thus  forcing  an  export  of  specie  to  meet  an 
unnatural  balance. 

(/)  It  will  counteract  the  influence  of  both  natural  and 
artificial  protection,  and  retard  the  normal  growth  of  home 
manufactures. 

Lastly,  it  will  create  panics,  and  cause  frequent  suspen- 
sions of  all  the  banks  in  the  country. 

It  may  be  thought  that  the  fact  that  the  government 
guarantees  the  national-bank  notes  will  prevent  a  run  upon 
the  banks  ;  but  that  will  be  found  an  entire  mistake.  Panics 
are  created  because  money  is  wanted  to  pay  notes  and  dis- 
charge immediate  obligations,  not  because  the  people  fear 
that  the  banks  are  insolvent. 


CHAP.  XIV.]  THE  NATIONAL   CURRENCY.  237 


DEVELOPMENT   OP   THE   NATIONAL   BANKING   SYSTEM. 

At  the  date  of  this  edition  (November,  1868),  the  national- 
bank  system  has  become  qnite  fully  developed.  There  are 
1,643  banks  in  40  States  and  Territories.  Their  condition 
and  movements  are  shown  by  the  official  report,  April  1, 
1868:  — 

Capital  stock  paid  in $420,221,210 

Surplus  fund 72,342,335 

Profits 32,780,722 

National-bank  notes  outstanding 295,017,089 

State-bank  notes  outstanding 3,310,177 

Individual  deposits 528,777,450 

United-States  deposits 22,744,035 

Deposits  of  disbursing  officers 4,880,996 

Due  to  national  banks 93,979,628 

Due  other  banks  and  bankers 21,384,365 

Total  Liabilities $1,495,438,207 

Loans  and  discounts §627,669,886 

Real  estate,  furniture,  &c 22,025,252 

Expense  account 5,411,230 

Premiums 2,659,086 

Cash  items 114,635,523 

Due  from  national  banks 95,533,980 

Due  from  other  banks 7,677,934 

United-States  bonds  for  circulation 339,266,650 

United-States  "bonds  for  deposits 37,426,000 

United-States  bonds  for  investment 45,942,800 

Other  stocks,  bonds,  and  mortgages 19,854,684 

Notes  of  national  banks  on  hand 12,562,228 

Notes  of  other  banks  on  hand 196,106 

Specie  on  hand 15,315,920 

Compound-interest  notes  on  hand 39,084,020 

Three  per  cent  certificates 24,255,000 

Clearing-house  certificates 170,000 

Legal-tender  notes  on  hand 85,751,718 

Total  resources $1,495,438,007 

From  the  above,  it  appears  that  the  banks  had  as 

Capital $420,221,210 

Surplus  fund 72,342,335 

Profits  on  hand 32,780,722 

Total  working  capital $525,344,267 

We  find,  further,  that  these  had  of 

Loans  and  discounts $627,669,886 

Bonds  of  the  United  States 422,635,450 

Other  bonds  and  mortgages 19,854,684 

Total  on  which  the  banks  draw  interest $1,070,160,020 


238  EXCHANGE.  [BOOK    III. 

Upon  their  "  loans  and  discounts,"  the  banks,  in  addition 
to  the  interest  they  charge,  often  receive  a  premium  of  ex- 
change. Upon  their  bonds,  mostly  5-20's,  they  obtain  6  per 
cent  in  gold,  which,  with  40  per  cent  premium,  is  equal  to 
over  8  per  cent  in  currency,  so  that  we  need  not  be  sur- 
prised to  find,  that,  besides  paying  annual  dividends  of  ten 
to  twelve  per  cent,  they  had  on  hand,  the  first  of  last  April, 
a  "  Surplus  Fund"  (mostly  accumulated  profits),  as  above, 
of  $72,342,335,  and  "  Profits"  (undivided),  of  $32,780,722 
acquired  since  their  establishment ;  and  yet  they  have  been 
in  full  operation  less  than  three  years,  only  643  having  been 
formed  prior  to  Jan.  1, 1865.  And  these  large  extra  profits 
have  been  made,  after  paying  the  taxes  of  the  general  gov- 
ernment, amounting,  for  1867,  to  $8,069,938,  and  expenses 
of  management,  which,  at  two  per  cent  upon  the  capital  (a 
liberal  estimate),  amount  to  $8,404,424. 

From  all  this,  it  will  appear  that  banking  under  the  new 
system  has  been  exceedingly  profitable  ;  indeed,  we  suppose 
the  most  profitable  business  in  the  nation  for  the  last  three 
years.  , 

The  effect  of  the  national-bank  issues  deserves  notice.  The 
government  has  out,  as  we  have  seen,  400  millions,  an 
amount  almost  double  the  circulation  in  1860,  and  of  course 
much  more  than  the  natural  wants  of  the  country  require ; 
so  that  the  300  millions  furnished  by  the  banks  was  just  so 
much  in  addition  to  the  previous  redundancy.  Not  a  dollar 
of  it  is  now  wanted,  or  has  ever  been  needed.  The  result 
has  been  an  excessive  derangement  of  the  monetary  affairs 
of  the  country,  and  of  all  trade  at  home  and  abroad. 

How  great  that  excess  is,  appears  from  the  following  sta- 
tistics :  — 

United-States  notes  (Oct.  1,  1868) §350,021,073 

Fractional  currency 32,933,614 

Gold  certificates 20,236,408 

Total  government  currency $409,191,087 

Circulation  of  the  banks $295,017,089 

Deposits 528,777,450 

823,794,539 

Total  currency §1,232,985,626 


CHAP.  XIV.]  THE   NATIONAL    CURRENCY.  239 

But  this  is  not  all,  as  there  are  65  millions  of  3  per  cent 
certificates  used  by  the  banks,  besides  other  public  securities 
which  practically  perform,  to  some  extent,  the  functions  of 
money,  so  that  the  total  effective  currency  has  been  esti- 
mated as  high  as  1,400  millions.  The  entire  currency  in 
I860  was  460  millions  of  circulation  and  deposits ;  the 
present  currency,  therefore,  as  compared  with  that,  is  found 
to  be  in  excess  by  some  200  per  cent,  or  three  times  as  great 
as  before  the  war. 

It  has  been  said  that  "  this  excess  will  soon  be  absorbed 
by  the  growing  wants  of  trade."  That  the  country  might 
"  grow  to  it,"  ultimately,  if  it  continued  to  advance  in 
wealth,  is  certain ;  but  the  period  is  far  distant.  In  1835, 
the  whole  circulation  was  103  millions ;  in  1860,  it  was,  as 
we  have  seen,  207  millions,  having  increased  at  the  rate  of 
4.36  per  cent  per  annum  during  the  intervening  25  years. 
Should  the  demand  continue  to  increase  in  the  same  ratio, 
it  would  require  the  lapse  of  40  years  from  1860,  or  until 
the  year  1900,  to  bring  the  wants  of  the  country  up  to  the 
present  supply.  In  the  mean  time,  the  currency  would 
remain,  not  only  an  inconvertible  one,  but,  for  all  practical 
purposes,  irredeemable,  even  in  greenbacks ;  because,  al- 
though strong  efforts  have  been  made  by  the  Comptroller  to 
secure  a  system  of  redemption,  opposing  influences  have 
hitherto  been  sufficiently  powerful  to  prevent  it;  and  the 
banks  issue  their  notes  without  any  fear  of  being  called 
upon  to  redeem  them.  This  is  a  most  dangerous  feature 
in  the  present  system ;  and  evil  consequences  cannot  fail, 
sooner  or  later,  to  result  from  it. 

The  contraction,  which  is  unavoidable  if  the  country  is 
ever  restored  to  sound  currency,  will  be  a  severe  trial  to  the 
national  banks.  They  have  fifty  per  cent  more  circulation, 
and  one  hundred  per  cent  more  deposits  to  be  redeemed 
than  the  old  State  banks  ever  had ;  and  their  loans  are 
nearly  one  hundred  per  cent  greater,  upon  which  there  will 
be  great  danger  of  heavy  loss. 


240  EXCHANGE.  [BOOK    III. 

The  small  amount  of  specie  ($15,315,920)  in  the  posses- 
sion of  the  hanks  against  their  immediate  obligations,  as 
above,  of  $823,794,539,  or  less  than  two  per  cent,  shows 
that  such  a  change  must  be  effected  in  the  current  of  trade 
as  will  secure  the  retention  at  home  of  all  our  gold  product, 
and  the  return  of  much  that  has  been  exported.  The  gov- 
ernment does  not  now  usually  hold  as  much  as  $100,000,000 
of  gold  against  $400,000,000  of  its  currency  obligations,  or 
about  twenty-five  cents  on  the  dollar ;  while  the  entire  spe- 
cie in  the  country,  above  that  held  by  the  government  and 
banks,  is  not  more  than  $35,000,000,  in  the  judgment  of 
those  best  qualified  to  form  an  intelligent  opinion,  making 
a  total  of  $150,000,000.  This  is  the  largest  estimate  that 
can  be  reasonably  made,  idle  assumptions  of  a  much  larger 
amount  to  the  contrary  notwithstanding. 

The  only  complacency  we  can  feel  in  the  present  system, 
as  compared  with  the  past,  is,  that  it  is  more  susceptible  of 
reform,  and  of  being  restricted,  by  national  legislation,  to 
legitimate  banking. 


CHAPTER  XV. 

EVIDENCES     OF     DEBT. 

We  have  already  spoken  of  two  different  modes  of  effecting 
exchanges ;  viz.,  (1)  barter,  and  (2)  a  universal  equivalent, 
money  or  currency.  "We  now  notice  a  third  mode  of  doing 
this  ;  viz.,  by  evidences  of  debt. 

These  are  mainly  of  three  kinds  :  — 

I.  Book  accounts.  A  sells  B  one  hundred  barrels  flour, 
and  charges  him  five  hundred  dollars  in  account,  to  be  paid, 
by  verbal  agreement,  in  four  months. 

This  is  a  very  extensive  mode  of  effecting  exchanges. 
Very  large  transactions  are  made  in  this  manner.  Retail 
trade,  especially,  is  almost  wholly  carried  on  in  this  way. 
These  accounts  are  often,  particularly  in  country  trade,  paid 


CHAP.  XV.]         EVIDENCES  OF  DEBT.  241 

in  commodities.  The  farmer  makes  his  purchases  of  the 
merchant,  from  time  to  time,  and  sells  him  his  produce 
when  ready  for  market.  Both  are  entered  in  account,  and 
the  final  balance  is  ascertained  and  adjusted  by  money  or 
other  equivalent. 

(a)  Book  accounts  are,  in  some  respects,  an  undesirable 
form  of  transfer,  because  they  are  ex  parte,  and  may  be 
disputed.  The  purchaser  may  deny  that  he  bought  such  a 
quantity,  or  at  such  a  price.  An  account,  if  disputed,  is 
always  a  matter  to  be  proved ;  and,  although  the  oath  of 
the  seller  is  generally  deemed  conclusive  evidence,  there  is 
always  opportunity  for  litigation. 

(5)  Another  objection  to  book  accounts  is,  that  they  are 
not  negotiable.  C  cannot  readily  purchase  B's  account 
against  A ;  but,  if  B  had  A's  note,  that  could  be  easily  ne- 
gotiated, or  transferred.  Accounts  cannot,  of  course,  be 
made  available  at  banks,  like  notes,  or  left  as  security  for 
money  borrowed.  The  capital  is  locked  up  for  the  time 
being. 

II.  The  next  mode  of  credit  is  that  of  notes.  These  are 
made  payable  for  a  given  sum,  and  at  a  given  date.  They 
are  generally  payable  to  the  order  of  the  payee,  and,  when 
negotiated,  are  indorsed  by  the  latter.  This  transfers  the 
ownership  to  a  third  person  ;  but  the  indorser  is  held  to  pay 
the  note,  if  the  promisor  fails  to  do  so. 

III.  A  third  form  is  by  bills  of  exchange,  or  orders  from 
A  to  B  to  pay  C  a  given  sum  at  a  fixed  time.  These  differ 
from  notes,  in  that  they  involve  three  parties,  —  the  drawer, 
the  acceptor,  and  the  payee.  They  have  a  form  usually 
somewhat  like  the  following :  — 

$1000.  New  York,  Jan.  1,  1866. 

Four  months  from  date,  pay  to  the  order  of  J.  Brentwood  &  Co. 
one  thousand  dollars,  value  received,  and  place  to  account. 

(Signed)  Henderson,  Williams,  &  Co. 

To  Messrs.  Bennet  Brothers  &  Co.,  Boston. 

16 


242  EXCHANGE.  [BOOK   III. 

Here  are  three  parties,  —  the  drawer,  the  acceptor,  and 
(lie  indorser  or  payee. 

This  is  first  called  a  draft.  When  presented  to  the  per- 
son on  whom  it  is  drawn,  and  hy  him  accepted  (which  is 
done  by  writing  the  word  "  accepted  "  on  the  face,  and  sign- 
ing the  name),  it  is  an  acceptance.  When  indorsed  by  the 
person  in  whose  favor  it  is  drawn,  it  becomes  a  complete  bill 
of  exchange. 

Tliis  species  of  transaction  will  arise  mainly  between  per- 
sons residing  in  different  places,  and  in  this  manner :  A,  in 
Boston,  orders  of  B,  in  New  Orleans,  one  thousand  bales  of 
cotton,  which  B  sends,  with  a  bill  of  the  same,  and  then 
draws  on  A  for  the  amount. 

The  commerce  of  the  world  is  carried  on  principally  by 
this  agency.  The  transportation  of  money  is  thus  dispensed 
with,  except  to  settle  the  final  balance  of  trade. 

BILLS   OF   EXCHANGE. 

Bills  of  exchange  may  be  divided  into  two  kinds,  —  do- 
mestic and  foreign. 

Domestic  bills  are  those  drawn  and  payable  within  the 
same  country,  as  between  different  cities  and  different 
States.  The  manner  in  which  these  bills  save  the  use  of 
money,  in  domestic  trade,  is  illustrated  as  follows :  — 

A,  in  Boston,  sells  to  B,  in  New  York,  goods  to  amount 
of  one  thousand  dollars. 

C,  in  New  York,  sells  to  D,  in  Boston,  leather  to  amount 
of  one  thousand  dollars. 

Instead  of  sending  the  money,  B,  in  New  York,  goes  to  C, 
in  New  York,  and  gets  his  draft  on  D,  and  remits  it  to  A, 
in  Boston,  who  receives  the  money  of  D  ;  and  the  transac- 
tions are  all  closed  without  a  dollar  in  money  having  been 
transferred  from  one  city  to  another. 

This  is  the  course  of  all  direct  trade  between  any  two 
places.     Not,  it  must  be  understood,  that,  in  the  case  sup- 


CHAP.  XV.]  EVIDENCES  OF  DEBT.  243 

posed,  B  actually  goes  to  C ;  but  the  merchants  in  Boston 
are  owing  millions  to  merchants  in  New  York,  while  per- 
sons of  the  latter  place  are  owing,  it  may  be,  an  equal 
amount  in  Boston. 

Bills  are  drawn  on  Boston  for  all  due  to  New  York,  and 
on  New  York  for  all  due  to  Boston.  These  bills  are,  when 
completed,  if  not  before,  generally  passed  into  the  banks, 
who  pay  out  the  money  for  them,  deducting  the  interest 
(and  exchange,  if  there  is  any).  Then,  if  a  merchant  in 
either  city  wishes  to  remit,  he  goes  directly  to  the  bank, 
which  will  draw  on  some  bank  in  New  York  or  Boston,  as 
the  case  may  be,  for  such  sum  as  he  may  want.  The  banks 
negotiate  or  collect  the  whole,  and  sell  or  dispose  of  their 
own  checks  or  drafts  for  the  amount. 

This  is  a  labor-saving  arrangement  of  immense  impor- 
tance, greatly  reducing  the  otherwise  inevitable  demand  for 
a  large  amount  of  money  to  be  kept  in  transitu  between  the 
different  marts  of  trade. 

INDIEECT   EXCHANGE. 

But  all  exchange  is  not  direct  between  two  places. 

A,  for  example,  in  St.  Louis,  ships  one  hundred  thousand 
dollars'  worth  of  lead  to  New  York.  He  wishes  to  pay  sun- 
dry persons  in  Boston,  Providence,  Lowell,  and  Lynn.  He 
draws  on  his  correspondent  in  New  York  for  all  these,  in 
favor  of  the  persons  to  whom  he  is  indebted  ;  and  the  drafts 
are  negotiated  by  the  receivers,  through  bank  in  the  several 
cities,  and  finally  all  sent  to  New  York  for  collection.  All 
domestic  trade  thus  becomes  a  great  web  of  exchanges,  which 
adjust  themselves  by  means  of  these  bills ;  and  thus,  to  their 
entire  aggregate  amount,  obviate  the  necessity  of  transmit- 
ting money. 

FOREIGN   EXCHANGE. 

This  consists  of  orders ;  that  is,  bills  of  exchange,  drawn 
upon  each  other  by  the  merchants  and  bankers  of  different 


244  EXCHANGE.  [BOOK  III. 

countries.  They  differ  little  in  form  from  domestic  bills, 
but  are  usually  drawn  in  sets  of  three ;  called,  respectively, 
the  first,  second,  and  third  of  exchange,  in  something  like 
the  following  form :  — 

£1000.  Boston,  June  28,  1859. 

At  sixty  days'  sight  of  this  first  of  exchange  (second  and  third 
unpaid),  pay  to  the  order  of  A.  Brown  &  Co.  one  thousand  pounds 
sterling,  value  received,  which  place  to  account. 

Brtdone  Brothers  &  Co. 
George  Peabody  &  Co., 
London. 

The  party  to  whom  the  bill  is  payable  takes  these,  and 
forwards  the  first  to  London,  where  it  is  accepted  and 
paid.  But  an  accident  might  occur  by  which  the  bill  would 
be  destroyed  or  lost  while  on  its  way  to  London  ;  and,  in 
that  case,  the  owner  would  forward  the  second,  which  would 
be  paid.  The  third  bill  is  also  held,  for  the  same  precau- 
tionary reasons. 

These  bills  arise  in  a  great  variety  of  ways.  Persons 
wishing  to  purchase  merchandise  or  other  articles  abroad 
go  directly  to  bankers  in  New  York,  Boston,  <fec,  and  buy 
a  bill  of  the  required  amount.  So  with  persons  wishing 
to  travel  abroad.  But  the  principal  amount,  of  course,  is 
drawn  in  payment  for  importations  of  foreign  merchandise. 
In  general,  the  trade  between  England  and  this  country  is 
carried  on  by  bills  drawn  on  this  side  the  water,  upon  cotton 
and  other  produce  shipped  abroad,  mostly  to  Liverpool. 

To  illustrate  the  ramifications  of  this  kind  of  intercourse, 
we  will  suppose  that  A,  in  Boston,  buys  merchandise  of  B, 
in  Liverpool ;  C,  Jn  Boston,  sells  goods  to  D,  in  New  Or- 
leans ;  E,  in  Boston,  buys  cotton  of  F,  in  New  Orleans,  and 
ships  the  same  to  G,  in  Liverpool.  Each  transaction,  we 
will  suppose,  amounts  to  five  thousand  dollars. 

How  are  all  these  settled  without  the  transfer  of  money  ? 
A  gets  the  draft  of  E  upon  G,  and  sends  it  to  B,  in  Liver- 


CHAP.  XV.]  EVIDENCES   OF  DEBT.  245 

pool ;  E  gets  the  draft  of  C  upon  D,  and  remits  it  to  F,  at 
New  Orleans,  who  receives  the  amount  of  D.* 

Thus  four  debts  of  five  thousand  dollars,  in  all  twenty 
thousand  dollars,  have  been  paid,  and  no  money  has  been 
transferred  from  one  place  to  another. 

Observe,  now,  the  saving  of  time  and  interest :  — 

To  have  transported  $5000  from  Boston  to  Liverpool 

would  have  ordinarily  required 14  days. 

The  same  amount  from  Liverpool  to  Boston     .     .     .     .  14  days. 

The  transport  from  Boston  to  New  Orleans 6  days. 

The  same  from  New  Orleans  to  Boston 6  days. 

Total 40  days. 

Saving  of  interest  on  15000  for  forty  days,  at  six  per 
cent,  is  $33.33.  From  this  view  of  the  matter,  we  see  what 
an  immense  saving  is  made  in  the  use  of  money,  the  ex- 
penses of  transporting  it,  and  the  interest  on  the  same,  upon 
the  thousands  of  millions  of  dollars  required  in  the  trade 
of  the  world. 

In  1857,  the  United  States  imported $362,000,000 

And  exported  cotton,  hreadstuffs,  &c,  $293,000,000  ; 

gold,  $69,000,000 360,000,000 

Leaving  a  nominal  balance  of     .     .     .         $2,000,000 

Another  thing  in  regard  to  exchange  may  be  noticed  ;  viz., 
England  received  that  year  of  us  (the  United  States)  fifty- 
four  millions  more  than  we  bought  of  her.  The  same  year 
we  bought  of 

Brazil  more  than  sold  to  her $16,000,000 

China 4,000,000 

Spain,  Cuba,  &c 29,000,000 

France 8,000,000 

$57,000,000 

*  These  transactions  go  through  banking  houses,  as  in  the  case  of  domes- 
tic exchanges 


246  EXCHANGE.  [BOOK  HI. 

These  balances  were  mainly  adjusted  by  drafts  on  Eng- 
land, by  which  our  balances  against  England  were  dis- 
charged. 

From  facts  like  these,  we  can  readily  believe  that  at  least 
nine-tenths  of  all  the  trade  of  the  world  is  carried  on  by  bills 
of  exchange.  Such  is  the  estimate  made  in  England  and 
this  country,  and  there  is  reason  to  believe  that  it  is  approx- 
imately correct. 

THE  NATURAL  RATE  OP  EXCHANGE. 

By  the  rate  of  exchange  is  meant  merely  the  price  or  cost 
of  transporting  money  from  one  point  to  another  ;  say,  from 
Cincinnati  to  New  York.  If  the  time,  freight,  insurance, 
and  other  charges  are  equal  to  one  per  cent,  then  that  is  the 
natural  rate  of  exchange.  We  have  shown  that  only  a  small 
amount  of  coin,  in  the  course  of  trade,  is  likely  to  be  trans- 
ported from  one  place  to  another.  As  there  is  a  mutual 
trade,  as  Cincinnati  buys  of  New  York  and  New  York  of 
Cincinnati,  it  is  only  necessary  to  buy  bills  of  exchange  be- 
tween these  places.  But  on  these  bills  there  will  be  a  pre- 
mium or  discount,  as  the  case  may  be.  If  New  York  has 
purchased  more  largely  in  the  mutual  trade,  there  will  be 
an  excess  of  demand  in  that  city  for  bills  on  Cincinnati. 
Reverse  the  supposition,  and  there  will  be  an  excess  of  de- 
mand in  Cincinnati  for  bills  on  New  York.  The  consequence, 
in  either  case,  will  be  a  rate  of  exchange  equal  to  the  trans- 
portation of  specie,  as  above  indicated.  The  rate  of  ex- 
change will  fluctuate  from  time  to  time  (other  things  equal) 
precisely  according  to  the  transactions  between  the  two 
cities.  It  becomes,  then,  in  point  of  fact,  the  barometer  of 
trade ;  indicating,  with  perfect  accuracy,  the  state  of  trade 
between  any  two  points,  at  home  or  abroad.  With  a  sound 
currency,  the  rate  of  exchange  may  always  be  relied  upon, 
and  is  always  watched  with  great  interest  by  every  intelli- 
gent merchant  and  banker. 


CHAP.  XV.]  EVIDENCES   OF  DEBT.  247 

If  this  be  so,  we  see  that  perfect  freedom  of  exchange  is 
of  great  importance,  and  that  no  extraneous  influence 
should  be  brought  to  disturb  this  barometer,  to  which  all 
ought  to  look  with  entire  confidence. 

If,  for  example,  there  existed  a  national  bank,  having  the 
right  to  inflate  the  currency  at  pleasure,  and  with  branches 
so  distributed  over  the  country  that  it  could  bring  its  whole 
power  to  bear  upon  any  given  point  whenever  it  chose,  it  is 
easy  to  see  that  such  an  institution  might  control  the  ex- 
changes, and  thus  do  a  great  injury  to  the  community ;  not 
only  by  charging  excessive  premiums,  but  by  disturbing  the 
normal  indications  of  the  exchange  market.  This,  it  has 
been  charged,  the  United-States  Bank,  whose  charter  ex- 
pired in  1836,  actually  did  ;  at  any  rate,  it  certainly  had  the 
power  and  the  motive  to  do  it. 

The  Bank  of  England  has  never  been  permitted  to  deal 
in  exchange. 

THE   RATE   OF   BRITISH   EXCHANGE. 

It  is  well  known,  that  the  ordinary  rate  of  exchange  be- 
tween this  country  and  England  is  from  nine  to  ten  and  a 
half  per  cent  against  the  United  States  ;  but  the  explanation 
of  this  is  not  generally  understood.  The  transportation  of 
specie  between  the  two  countries,  all  charges  and  time  in- 
cluded, costs  only  about  one  and  one-quarter  per  cent.  Why, 
then,  this  difference  ? 

When  the  American  government  was  first  formed,  the  old 
Spanish  milled  dollar  was  in  use  ;  and  $4.44  were  equal  to 
the  British  gold  coin  called  a  sovereign,  or  pound  sterling. 
And  Congress  enacted  that  $4.44  should  be  the  rate  at 
which  the  pound  sterling  must  be  computed  at  our  custom- 
houses. 

Since  that  time,  important  changes  have  taken  place ;  the 
relative  value  of  gold  and  silver  have  changed.  The  latter 
has  advanced,  or  the  former  declined.     The  American  dol- 


248  EXCHANGE.  [BOOK   III. 

lar,  too,  lias  been  altered,  so  that  it  has  a  less  quantity  of 
silver;  and  our  gold  coins,  also,  proportionately.  It  there- 
fore now  takes  $4.86.6,  in  American  coin,  to  be  equal  to  a 
pound  sterling.    Thus  the  — 

Actual  value  of  the  pound  sterling  is $4.86,6 

Legal  valuation 4.44,4 

Difference .42,2 

which,  it  will  be  seen,  is  equal  to  very  nearly  nine  and  one- 
half  per  cent ;  so  that,  when  exchange  is  quoted  at  nine 
and  one-half  per  cent,  it  is  really  at  actual  par. 

Now,  if  this  is  the  actual  par  value  of  the  two  currencies, 
it  will  happen,  that,  whenever  the  market  rate  of  exchange 
rises  so  far  above  nine  and  one-half  per  cent  as  to  be  suffi- 
cient to  pay  the  expenses  of  sending  specie  and  a  trifle 
more,  then  the  specie  will  go  forward. 

What  these  expenses  are  will  be  seen  by  a  statement  of 
an  actual  transaction  between  Boston  and  London,  Feb- 
ruary, 1865. 

Gold  purchased $50,000 

Insurance,  one-half  per  cent $250.00 

Freight  to  Liverpool,  three-eighths  per  cent  .        187.50 

Carriage,  Liverpool  to  London 5.00 

Selling,  commission,  one-eighth  per  cent     .  62.50 

Fourteen  days'  time  lost,  at  six  per  cent    .     .         83.33 

$588.33 

These  expenses  are  equal  to  about  one  and  one-sixth  per 
cent. 

There  is  always  some  risk  that  the  specie  sent  forward 
may  not  hold  out  full  weight ;  that  is,  that,  owing  to  abra- 
sion in  use,  it  might  fall  short  a  trifle  :  so  that,  probably, 
instead  of  one  and  one-sixth,  the  exporter  of  gold  might  as 
well  have  bought  a  bill  of  exchange,  at  one  and  one-quarter 
per  cent  above  9| ,  the  actual  par. 


CHAP.  XV.]  EVIDENCES   OF   DEBT.  249 

Then,  if  the  difference  in  the  par  value  of  the  two  curren- 
cies is  equal  to 9.5 

And  the  expenses  of  remitting  gold  equal  to 1.25 

Real  par  value  of  exchange,  total 10.75 

it  will  follow  that  gold  will  not  ordinarily  be  exported  until 
the  market  rate  of  exchange  is  about  ten  and  one-half  to  ten 
and  three-quarters  per  cent. 

The  same  general  principle  applies  to  French  exchange, 
which  usually  stands  at  about  five  per  cent  against  this  coun- 
try. It  is  only  the  difference  between  the  value  of  the  coins 
of  the  respective  countries,  as  computed  here. 

Although  Congress,  some  time  since,  made  a  change 
in  the  law  in  regard  to  the  computation  of  the  British 
pound,  —  fixing  it  at  $4.84,  —  yet  such  has  been  the  in- 
superable strength  of  old  custom  and  inveterate  habit, 
that  the  quotations  of  exchange  still  continue  to  be  based 
on  $4.44. 

While  this,  of  course,  is  not  a  matter  of  great  impor- 
tance, we  think  the  Boards  of  Trade  in  the  Atlantic  cities 
would  do  well  to  use  their  influence  against  the  absurd 
practice. 

A  change  so  desirable  and  expedient  cannot  be  long 
delayed. 

AEE  BILLS   OP   EXCHANGE   CURRENCY  ? 

It  has  often  been  maintained  that  bills  of  exchange  are 
currency,  as  truly  as  bank-notes.     Let  us  inquire. 

1st,  The  popular  definition  of  currency  is,  that  which 
passes  current  from  hand  to  hand  in  all  transactions  between 
buyer  and  seller,  in  large  or  small  amounts ;  and,  also,  in 
payment  of  all  obligations.  It  is  evident  that  this  is  not 
true  of  bills  of  exchange,  which  may  be  taken  as  the  exam- 
ple of  all  negotiable  paper.  It  is,  indeed,  said,  that  in  some 
countries,  as  in  Great  Britain,  they  are  so  used,  in  a  limited 


250  EXCHANGE.  [BOOK   III. 

degree ;  but  even  such  use  does  not  bring  them  within  the 
definition. 

2d,  The  wider  definition  which  we  gave  of  currency,  viz. 
that  instrumentality  by  which  a  general  exchange  of  values 
is  effected  and  payments  are  made,  does  not  embrace  bills 
of  exchange,  which  have  themselves  to  be  discharged  with 
currency.  The  fact,  that,  when  found  in  equal  amount  on 
opposite  sides,  they  may  be  used  to  cancel  each  otber, 
makes  them  no  more  currency  than  is  the  credit  side  of  a 
book-account,  which  balances  the  debit.  Bills  of  exchange 
dispense  with  the  necessity  of  transporting  currency  in  a 
certain  number  of  commercial  transactions :  they  are  not, 
therefore,  themselves  currency.  They  allow  debts  between 
different  States  or  nations  to  be  discharged  in  the  local 
currencies  ;  but  each  bill  is  itself  discharged  in  full  by  the 
use  of  currency,  no  less. 

3d,  Currency,  if  it  be  equal  to  money,  can  be  at  once  ex- 
changed for  specie,  at  the  place  where  issued  ;  but  cash  can- 
not be  obtained  on  demand  for  bills  of  exchange,  as  they 
are  generally  on  time.  Here,  then,  is  another  wide  differ- 
ence between  currency  and  individual  promises.  They  are, 
in  fact,  bought  and  sold  for  money,  like  the  merchandise  on 
which  they  are  drawn. 

4th,  Currency  is  that  in  which  all  persons  promise  to  pay 
their  cash  obligations.  Is  that  true  of  bills  of  exchange  ? 
Quite  the  reverse. 

5th,  If  a  bill  of  exchange  be  dishonored,  that  is,  not  paid 
according  to  promise,  the  currency  of  the  country  is  not 
thereby  diminished.  Is  it  so  with  currency  ?  On  the  con- 
trary, if  a  bank  fails,  so  much  currency  as  it  has  in  circula- 
tion is  at  once  abstracted  from  the  community. 

But  how  is  it  with  bills  of  exchange  and  notes  ? 

Suppose  the  indebtedness  of  a  country  were  one  hundred 
millions,  and  its  currency  ten  millions. 

Then,  if  fifty  millions  of  the  bills  of  exchange  and  notes 
of  hand  fail  to  be  paid,  there  still  remains  the  Ten  millions 


CHAP.  XV.]  EVIDENCES   OF  DEBT.  251 

of  currency  with  which  to  pay  the  balance ;  and  currency  is 
twice  as  plentiful,  relatively  to  indebtedness,  as  before. 

Suppose,  on  the  other  hand,  that  one-half  the  currency 
fails,  while  the  whole  amount  of  bills  of  exchange,  &c, 
remain  to  be  paid ;  or,  to  go  further,  suppose  the  entire 
currency  to  fail :  then  how  can  the  private  bills  be  paid  at 
all? 

So  far  from  being  currency,  then,  they  are  the  very  oppo- 
site in  their  nature,  and  can  be  discharged  only  by  the  use 
of  currency. 

The  more  bills  of  exchange,  the  less,  relatively,  is  the  cur- 
rency: the  fewer  bills  of  exchange,  the  more  plenty,  rela- 
tively, is  money. 

How,  then,  can  bills  of  exchange  and  promissory  notes 
be  synonymous  with  currency  ? 

6th,  Do  bills  of  exchange  affect  the  standard  of  value,  and 
consequently  prices  ?  If  plenty,  are  commodities  higher  ? 
if  scarce,  are  they  lower  ? 

If  bills  of  exchange  were  passed  from  hand  to  hand  in 
exchange  for  merchandise  (which  we  are  sure  is  not  the 
case  to  any  considerable  extent  in  the  United  States,  if  any- 
where), it  would  seem  that,  so  far  as  thus  used,  they  would 
affect  prices  ;  but  this  could  only  be  temporarily,  because,  in 
a  short  time,  the  state  of  the  money  market  would  restore 
the  equilibrium.  If  they  do  raise  the  prices,  they  will  in  so 
far  prevent  exports,  and  increase  imports  and  consumption ; 
and  thus  a  demand  must  arise  for  specie  for  export,  to  settle 
the  balance  of  trade ;  and  this  will  cause  a  contraction  and 
a  fall  of  prices. 

7th,  A  scarcity  of  bills  of  exchange,  however  great,  can 
never,  under  a  sound  currency,  be  the  occasion  of  pressure 
for  money,  or  a  panic  ;  but  a  scarcity  of  currency  may  do 
this,  and  often  does. 

Do  we  not  see,  then,  that  there  is  a  wide  distinction  be- 
tween currency  and  all  forms  of  credit  ?  —  that  to  confound 
them  is  to  destroy  necessary  distinctions  ? 


BOOK  IT. 
DISTRIBUTION. 


CHAPTER  I. 

DIVISIONS  OF  THE   SUBJECT. 

The  distribution  of  wealth,  like  its  exchange,  arises  out  of 
the  division  of  labor. 

We  have  seen,  that  production  might,  in  strict  theory, 
proceed  without  co-operation  ;  with  feeble  and  painful  steps, 
it  is  true  :  but  its  laws  would  still  be  perfect,  should  all  men 
refuse  to  associate  in  their  efforts,  and  singly  seek  the  satis- 
faction of  their  desires.  In  such  a  case,  there  would  be 
neither  exchange  nor  distribution. 

We  have  seen  by  whom  all  wealth  is  produced,  have  ex 
amined  the  instrumentalities  employed  in  its  transfer  from 
one  individual  or  people  to  another,  and  have  contemplated 
the  nature  and  extent  of  that  great  system  of  trade  by 
which  the  products  of  the  world  are  made  to  minister  to  its 
wants. 

We  have  observed  that  capital  and  labor  are  united  in 
production, — one  as  the  labor  of  the  past,  the  other  as  the 
labor  of  the  present ;  and  that  the  joint  product  is  divided 
between  them.  We  now  come  to  consider  the  laws  by 
which  an  equal  and  just  distribution  of  the  wealth  produced 
shall  be  secured  among  the  parties.  In  doing  this,  we  are 
obliged  to  discriminate  between  the  different  kinds  of  labor 
employed  and  the  various  forms  in  which  capital  enters  into 
production. 

[252] 


CHAP.  I.]  DIVISIONS   OP  THE   SUBJECT.  253 

Labor,  in  the  distribution  of  wealth,  falls  into  three  gen- 
eral classes :  — 

1st,  Physical  or  muscular  effort. 

2d,  Mental  effort  or  enterprise,  applied  to  the  union  of 
capital  and  labor. 

3d,  Subsidiary  labor,  or  professional  services,  auxiliary 
to  direct  efforts  in  production. 

The  reward  of  the  first  is  called  wages ;  that  of  the 
second,  profits;  of  the  third,  salaries,  fees,  &c,  —  but 
another  name  for  wages. 

In  these  three  general  forms,  labor  receives  its  reward. 
It  is,  however,  to  be  observed,  that,  though  the  distinction 
is  clear  between  the  wages  of  direct  labor  and  the  compensa- 
tion paid  for  subsidiary  labor, —  like  professional  services, 
—  yet  the  laws  which  govern  are  so  similar  as  to  render 
separate  examination  unnecessary.  Both  are  controlled  by 
the  proportion  of  supply  and  demand. 

Capital  is  loaned  in  two  general  forms  :  — 

1st,  When  invested  with  a  permanent  character  and 
having  a  fixed  place, —  as  houses,  fields,  &c, — its  compen- 
sation is  called  "  rent." 

2d,  When  in  a  shape,  however  solid  and  tangible,  which 
is  not  intended  to  be  retained,  but  may  be  altered  to  suit 
the  business,  or  removed  for  convenience  of  location, — 
i.e.,  where  not  the  identical  product,  but  only  an  equivalent, 
is  to  be  returned,  —  its  compensation  is  called  "  interest.*' 

Such,  then,  are  the  forms  in  which  capital  does  its  part 
in  production ;  and  such  the  forms  in  which  it  receives  its 
share  in  distribution.  They  are,  in  their  nature,  the  same, 
and  in  scientific  treatment  might  properly  be  discussed 
under  one  title ;  but  the  common  names  are  so  deeply  fixed 
in  the  mind,  so  intimately  associated  with  political  economy, 
and  so  interwoven  with  daily  experience,  that  only  confusion 
could  result  from  speaking  of  them  as  one. 

Production,  thus  far,  has  been  charged  with  wages  (and 
under  this  term  we  include  all  the  rewards  of  auxiliary 


254  DISTRIBUTION.  [BOOK   IV. 

labor,  salaries,  fees,  &c),  profits,  interest,  and  rent.  Be- 
tween  these  parties  the  product  is  to  be  divided.  This 
division  is  made  by  natural  laws,  which,  if  not  interfered 
with  by  legal  enactments  or  social  customs,  will  secure  to 
each  its  rightful  share. 

But,  while  this  is  true,  another  party  enters  the  field,  and 
makes  a  peremptory  claim  to  a  portion  of  the  wealth  which 
the  joint  efforts  of  these  has  produced.  That  party  is  gov- 
ernment^ demanding  a  revenue  for  its  maintenance,  to 
which  all  must  and  should  contribute.  This  is  done  in  the 
general  form  of  taxation. 

Distribution  is  now  complete,  —  wages,  profits,  interest, 
rent,  and  taxation.  These  we  shall  examine  in  their 
order. 


CHAPTER   II. 

WAGES. 

Since  labor  and  capital  join  together  in  production,  each 
may  rightfully  claim,  and  in  the  nature  of  things  must 
receive,  a  share  of  whatever  is  produced. 

The  share  which  labor  receives  is  called  "  wages ; "  and 
by  this  general  term  is  meant  that  compensation  which  the 
employer  pays  to  the  employed  for  his  personal  services. 
The  law  of  value  is  the  law  of  wages.  Wages  confer  value, 
and  are  measured  by  it.  They  depend  essentially  on  the 
conditions  of  cost,  supply,  and  demand.  Competition  comes 
in  to  influence  their  rate,  as  it  does  the  price  of  other  com- 
modities. 

Wages  vary  greatly  in  different  countries,  and  in  different 
parts  of  the  same  country ;  they  vary,  too,  in  all  the  em- 
ployments and  occupations  of  society.  These  differences, 
however,  are  neither  accidental  nor  arbitrary,  but  depend 
on  certain  laws  which  it  is  our  purpose  to  point  out.* 
*  A  part  of  this  chapter  appeared  in  the  "Merchant's  Magazine"  in  1857. 


CHAP.  II.]  WAGES.  255 

The  joint  instrumentality  of  labor  and  capital  being 
necessary  to  the  production  of  wealth,  it  follows  that  the 
interests  of  the  two  parties  are  closely  connected  ;  that  cap- 
ital is  as  dependent  on  labor  as  labor  is  upon  capital. 

If  this  is  so,  the  probabilities  of  an  equitable  division 
will  depend  on  the  freedom  with  which  both  parties  are 
able  to  act,  and  the  equality  on  which  they  stand  when  the 
contract  or  copartnership  is  formed. 

Whatever,  in  social  arrangements  or  civil  institutions, 
destroys  the  natural  freedom  and  equality  of  the  parties, 
gives  one  an  advantage  over  the  other ;  and  the  party  having 
the  advantage  will  profit  by  it. 

Wherever,  by  class  legislation,  capital  is  allowed  to  tyran- 
nize over  its  copartner,  or  concentrate  itself  in  vast  aggre- 
gations, and  thus  increase  its  natural  power  over  labor, 
which  cannot  be  thus  brought  into  powerful  and  permanent 
combination,  the  latter  will  be  compelled,  in  one  form  or 
another,  to  take  up  with  less  than  its  just  reward. 

But,  however  unjust  or  arbitrary  laws  or  institutions  may 
be,  it  is  evident  there  are  certain  limits  beyond  which  the 
wages  of  labor  cannot  be  reduced. 

The  cost  of  labor  is  identical  with  the  cost  of  maintain- 
ing the  laborer  in  such  circumstances  that  he  can  not  only 
support  himself,  but  rear  a  family  of  children  sufficiently 
numerous  at  least  to  keep  the  supply  of  laborers  good. 

Hence  he  must  receive  what  has  been  properly  denomi- 
nated necessary  wages  ;  that  is,  to  use  in  part  the  definition 
of  Adam  Smith,  "  such  wages  as  will  enable  him,  not  only 
to  obtain  the  commodities  absolutely  necessary  to  the  sup- 
port of  life,  but  whatever  else  the  customs  of  society  render 
it  indecent  for  persons  in  his  rank  in  life  to  be  without." 

There  being,  then,  no  uniform  and  established  standard 
of  wages,  they  vary  according  to  the  expenses  of  subsist- 
ence in  different  countries,  and  the  condition  in  which  the 
laboring  classes  are  willing  to  live. 

The  cost  of  labor,  or  the  current  rate  of  wages  that  can 


256  DISTRIBUTION.  LB00K  IV- 

perinaiiently  exist,  depends  on  the  necessary  expenses  of 
living;  and  these  expenses,  in  turn,  depend  upon  the  condi- 
tion of  the  laboring  classes.  Hence,  other  things  equal,  the 
more  educated  and  morally  and  intellectually  elevated  any 
community  of  laborers  may  be,  the  higher  will  be  their 
standard  of  wages. 

Wages  are  not  high  in  proportion  to  the  wealth  of  a  com- 
munity, but  rather  to  the  disposition  that  exists  amongst 
those  possessing  wealth  to  pay  it  out  for  labor ;  and  this 
disposition  will  depend  much  upon  the  security  and  profita- 
bleness with  which  capital  can  be  employed  in  production, 
and  the  enterprise  and  aspirations  of  the  people. 

We  make  the  following  divisions  of  our  subject :  — 

NOMINAL   AND   REAL  WAGES. 

There  is  often  a  considerable  difference  between  the  nom- 
inal and  real  wages,  or  between  the  wages  of  the  employe' 
when  received  in  money  or  when  realized  in  such  commodi- 
ties as  his  wants  require.  As  this  is  a  question  of  fact,  we 
refer  to  pages  177,  178,  of  this  work,  as  shown  in  Table  V. 
In  that  table  we  find  the  prices  of  ten  commodities, 
which  the  laborer  would  be  likely  to  use  in  his  ordinary 
consumption,  such  as  sugar,  coffee,  molasses,  pork,  cheese, 
rice,  salt,  &c. 

By  taking  the  wages  of  the  laborers  at  certain  periods, 
and  the  prices  at  corresponding  periods,  we  ascertain  the 
desired  results.  We  have  added  the  year  1864  from  the 
best  unofficial  sources  at  hand :  — 

1836.  1840.  1843.  1864. 

Wages*     ....   $1.25  $1.00  $1.00  $1.50 

Commodities  .     .     .    29.46  20.73  14.82  46.96 

Labor  required   .     .    23£  days  20|  days  14 J  days  34^  days 

*  It  is  to  be  regretted  that  we  have  no  carefully  prepared  tables  of  wages 
in  the  United  States.  Such  are  greatly  needed.  We  have  taken  the  rates 
mentioned  according  to  our  own  observation,  and  believe  them  essentially 
correct. 


CHAP.  III.] 


RISE   AND   FALL   OF   WAGES. 


257 


Nominal  wages  fell  from  1836  to  1840  by  one-fifth,  or 
twenty  per  cent ;  yet  the  real  wages  (as  shown  by  the  less 
number  of  days  required  to  procure  the  same  commodities) 
were  higher  in  1840  than  1836  by  more  than  thirteen  per 
cent.  In  1843,  when  the  nominal  wages  were  but  one  dollar, 
real  wages  were  about  sixty  per  cent  better  than  in  1836, 
when  the  nominal  wages  were  twenty-five  per  cent  higher. 
In  1864,  when  nominal  wages  were  at  one  dollar  and  fifty 
cents,  real  wages  were  but  little  more  than  half  what  they 
were  in  1843  at  one  dollar. 

In  this  connection,  it  seems  appropriate  to  mention  the 
great  difference  to  the  laboring  classes  between  a  value  and 
a  credit  currency.  If  the  latter,  as  we  have  endeavored  to 
show,  raises  prices  and  causes  speculation,  and  if  the  price 
of  labor  does  not  rise  in  proportion  to  the  rise  of  prices, 
then  it  must  follow  that  wages  were  really  less  at  all  times 
of  inflation  than  when  the  currency  is  in  a  natural  con 
dition.  How  great  these  fluctuations  are  we  have  seen  in 
Table  V.,  pages  177,  178,  from  which,  as  an  illustration  in 
point,  we  give  the  following  triennial  synopsis :  — 


Years  .  .  . 

1834. 

1837. 

1840. 

1843. 

1847. 

1850. 

1853. 

1856. 

1859. 

Prices  .  .  . 

$19.13 

$28.40 

$20.73 

$14.82 

$20.82 

$16.20 

$22.47 

$25.02 

$22.11 

Every  one  acquainted  with  the  rate  of  wages  will  realize 
at  once  that  they  have  not  corresponded  to  their  fluctua- 
tions in-  prices,  and  that  the  laboring  and  salaried  classes 
must  have  suffered  great  injustice  in  consequence. 


CHAPTER  III. 

PROPORTIONATE  RISE   AND   FALL   OF   WAGES. 

Although  wages  rise  and  fall  with  the  general  rise  and  fall 
of  commodities,  they  do  not  in  equal  proportion.  The  fact 
is  one  of  common  observation ;  but  the  reason  of  this  dif- 

17 


258  DISTRIBUTION.  [BOOK   IV. 

ference  we  do  not  recollect  to  have  seen  stated  by  any 
writer.  For  nearly  all  products  there  is  both  an  actual  and 
speculative,  or  a  present  and  prospective,  demand :  for 
labor  there  is  only  an  actual,  present  demand.  When  busi- 
ness begins  to  be  particularly  prosperous,  there  is  a  general 
demand  for  all  kinds  of  merchandise,  and  prices  gradually 
begin  to  improve.  This  at  once  occasions  a  speculative 
demand ;  for  to  buy  will  be  to  realize  an  advance  :  the  larger 
the  purchases,  the  greater  the  amount  of  profits.  Every  ope- 
ration pays.  The  rise  continues  until  every  article  bought 
and  sold  as  merchandise  goes  up  to  the  highest  point. 

But  no  one  speculates  in  wages.  No  one  can,  if  he 
would,  buy  a  hundred  thousand  dollars'  worth  of  labor,  and 
hold  it  for  an  advance,  as  he  can  of  flour,  sugar,  or  tea. 
Of  course,  labor  has  no  advantage  from  this  kind  of  demand, 
but  must  rely  entirely  on  that  which  is  immediate  and 
actual.  Therefore  it  is  that  a  general  rise  of  prices,  so  far 
as  occasioned  by  speculation,  must  always  operate  against 
the  laborer,  or  the  person  employed  on  salary  or  wages. 

But  wages  not  only  never  rise  so  much  as  commodities, 
but  do  not  rise  so  soon.  The  reason  is,  that  the  rise  of 
commodities  is  greatly  accelerated  by  speculation ;  while 
labor,  as  before  stated,  is  not  affected  by  that  kind  of  de- 
mand. Hence  it  does  not  begin  to  rise  until  speculation 
has  engendered  a  spirit  of  extravagance  and  increased  con- 
sumption ;  then  wages  make  an  advance  about .  half  as 
great,  on  an  average,  as  that  of  merchandise  in  general. 

And,  again,  wages  fall  sooner  than  merchandise,  because 
the  latter  may  be  held  for  high  prices,  if  need  be.  The  fall 
of  merchandise  is  broken  by  the  disposition  and  ability  of 
the  owner  to  hold  on,  and,  as  far  as  possible,  prevent  loss ; 
but  the  laborer  cannot  do  this, — he  must  sell  his  com- 
modity at  once  for  the  most  it  will  bring. 

It  is  for  those  obvious  reasons  that  wages,  in  times  of 
depression,  must  fall,  not  only  sooner,  bui  lower,  than  prop- 
erty in  general.    (See  Appendix  B.) 


CHAP.  III.]  EISE  AND   PALL   OF  WAGES.  259 

A  real  rise  or  fall  in  wages  is  a  matter  difficult  to  ascer- 
tain with  certainty.  Fluctuations,  since  the  introduction 
of  mixed  currency,  have  been  frequent  and  violent,  not  in 
the  rate  of  wages  only,  but  of  those  commodities  upon 
which  the  laborer  subsists,  and  in  which  his  real  wages  must 
be  estimated.  To  determine  whether  actual  value  wages 
have  advanced  or  not  since  the  commencement  of  the 
present  century,  for  example,  we  must  have  the  nominal 
rates,  say,  in  1810,  also  in  1860.  We  must  then  take  the 
prices  of  commodities  at  the  two  periods  ;  and,  by  compari- 
son, we  may  arrive  at  a  general  conclusion.  We  should 
undoubtedly  be  satisfied  that  there  has  been  a  decided 
increase  in  the  average  value  of  wages.  In  our  investiga- 
tion, we  should  find  that  some  articles  were  higher  and  some 
lower  in  price  in  1860  than  fifty  years  before.  For  example, 
while  one  dollar  per  day  for  labor  was  probably  as  high 
wages  in  1810  as  one  dollar  and  a  half  in  1860,  corn  was 
worth  the  same  at  each  end  of  the  half-century ;  but  cotton 
cloth,  which  was  worth  forty  cents  a  yard  in  1810,  could  be 
bought  in  1860  for  ten  cents.  In  all  manufactured  articles, 
the  difference  is  against  the  earlier  labor  ;  so  that  it  is  true 
the  laborer  of  to-day  enjoys  many  comforts  to  which  his  pre- 
decessors could  not  aspire.  The  wants  of  the  laborer  have 
immensely  increased.  It  would  be  impossible  to  give  an 
inventory  of  them  ;  but,  could  we  compare  the  consumption 
of  those  classes  in  1810  with  their  consumption  in  1860,  we 
should  find  the  advance  surprising.  The  amount  expended 
for  pleasure-travel,  for  example,  by  this  class  is  immense, 
while  fifty  years  ago  it  was  hardly  appreciable.  So  of 
the  luxury  of  newspapers,  magazines,  <fec.  Some  part 
of  the  expenditures  of  the  poorer  classes  are  for  articles 
(like  photographs)  which  were  absolutely  unknown  a  gen- 
eration since. 

Workmen  may  be  less  satisfied  with  their  compensation 
now  than  fifty  years  ago ;  but  it  is  really  far  greater.  We 
do  not  say  they  have  no  cause  for  complaint,  yet  they  are 


260  DISTRIBUTION.  [BOOK   IV. 

vastly  better  ofT  than  those  who  went  before  them.  Wages, 
when  realized  in  commodities,  have  increased.  The  general 
product  has  been  enlarged  by  the  introduction  of  labor- 
saving  machinery,  and  therefore  their  absolute  share  is 
greater.  Whether  their  relative  share,  as  compared  with 
that  of  the  capitalist  or  employer,  is  greater,  we  shall  find 
place  elsewhere  to  discuss.* 

The  laborer  suffers  nothing,  but  gains  much,  in  the  pro- 
gress of  civilization,  if  he  is  not  despoiled  by  an  unsound 
currency.  That  is  his  greatest  oppressor,  because  his  real 
wages  —  what  he  obtains  in  commodities  for  his  labor  —  is 
determined  to  a  considerable  extent  by  the  character  of  the 
circulating  medium  of  the  country.  If  the  value  of  that,  or 
its  purchasing  power,  is  less  than  it  professes  to  be,  he  can- 
not fail  to  be  injured  by  it. 

DIFFERENCE   OF   WAGES   FROM   DIFFERENCE   OF   EMPLOYMENTS. 

Occupations  which  manifestly  involve  a  great  amount  of 
personal  danger  command  higher  wages  than  those  regarded 
as  perfectly  safe.  The  risk  of  life  must  be  taken  into  ac- 
count. The  man  who  works  at  powder-making  gets  a 
higher  price  than  the  man  who  works  upon  a  farm ;  the 
man  employed  in  blasting  rocks,  than  the  man  who  shovels 
gravel.  So  it  ought  to  be,  and  so  to  some  extent  it  is,  in 
regard  to  mining  and  other  dangerous  employments ;  though, 
from  the  smallness  of  the  difference,  it  is  often  quite  mani- 
fest that  human  life  is  placed  at  a  low  valuation. 

Any  occupation  which  public  opinion  brands  as  odious 
ami  revolting  will  usually  be  found  to  pay  a  large  compensa- 
tion, for  the  reason  that  honorable  or  conscientious  men 
will  not  engage  in  it. 

*  The  very  low  rate  of  "  corn  wages  "  received  by  the  English  laborer 
in  times  past  may  be  seen  from  the  statement  of  Mr.  Malthus  (Pol.  Econ., 
p.  228,  Lond.  ed.  1836),  that  wages  had  advanced,  and  wheat  fallen,  so  much 
"  that,  from  1720  to  1750,  a  whole  peck  of  wheat  could  be  had  for  a  day's 
labor." 


CHAP.  III.]  DIFFERENCE  IN   WAGES.  261 


UNHEALTHY  TRADES. 

Those  occupations  which,  although  not  immediately  dan- 
gerous, are  nevertheless  unhealthy  and  abridge  human  life, 
ought  to  command  more  than  ordinary  wages. 

If  a  man  is  liable  to  be  made  sick,  and  consequently  ex- 
posed to  loss  of  time  and  expense  for  medical  attendance, 
he  should  be  compensated  for  that  liability.  If  he  shortens 
life  in  a  particular  employment,  that  should  be  a  matter  of 
consideration  in  determining  the  rate  of  wages. 

It  is  not  for  us  to  inquire  here  whether  a  man  may  right- 
fully engage  in  that  which  he  knows  will  abridge  life ;  but 
that  multitudes  do  so  is  beyond  a  doubt. 

Regarded  in  a  merely  economical  point  of  view,  it  is 
obvious,  that,  on  this  account,  some  laborers  should  receive 
much  higher  compensation  than  they  do  at  present.  To 
determine  what  that  increased  pay  ought  to  be,  we  should 
be  obliged  to  ascertain  the  value  or  expectation  of  life  in 
the  different  occupations. 

The  expectation  of  life  should  be  a  matter  of  considera- 
tion with  every  one  choosing  his  business,  and  should  have 
importance  in  determining  the  rate  of  wages.  That  this  is 
not  adequately  the  case  now  is  quite  evident,  because  wages 
paid  for  labor  in  unwholesome  employments  do  not  corre- 
spond with  the  consequent  abridgment  of  human  life ;  so 
that  the  laborer  not  only  loses  a  good  part  of  his  life,  but 
also  a  share  of  the  wages  he  ought  to  receive  while  he 
does  live. 

Agriculture  is  evidently  the  normal  employment  of  man, 
that  in  which  he  lives  longest  and  enjoys  the  greatest 
health.  Every  other  calling  is  unwholesome  to  the  exact 
extent  in  which  it  departs  in  its  condition  from  the  agricul- 
tural ;  and  the  rate  of  wages  should  be  adjusted  to  a  scale 
constructed  on  this  principle. 


262  DISTRIBUTION.  [BOOK  IV. 


THE   EDUCATION   OP   THE   LABORER. 

Other  things  equal,  the  man  who  has  received  merely  a 
common-school  education  will  obtain  higher  wages  in  any 
employment  than  one  who  is  entirely  illiterate.  He  has 
some  mental  discipline,  will  therefore  be  more  intelligent 
and  capable,  will  better  understand  and  recollect  the  direc- 
tions of  his  employers,  better  comprehend  the  nature  of 
his  duties.  If  need  be,  he  can  keep  an  account  of  what  he 
does.  He  has  in  some  measure  learned  to  think ;  he  will 
have  a  higher  sense  of  self-respect,  and  be  more  reliable. 

The  difference  in  favor  of  a  workman  who  is  so  far  fur- 
nished with  intelligence  that  he  can  do  his  own  share  of 
thinking,  instead  of  relying  entirely  upon  his  employer  for 
every  exercise  of  judgment  and  forecast,  is  very  great  to 
the  employer.  If  the  latter  is  compelled  to  supply  all  the 
head-work,  he  must  be  in  constant  attendance,  and  exercise 
the  utmost  vigilance.  Five  stolid  workmen  will  cost  him  as 
much  time  as  ten  intelligent  ones,  and  a  great  deal  more 
care,  vexation,  and  loss.  Hence  intelligent  labor  is  worth 
more,  and  will  bring  more. 

THE  FRUGALITY  OF  THE  LABORER. 

Another  important  consideration  in  connection  with  this 
part  of  our  subject  is,  that  the  educated  laborer  will  be 
more  likely  to  appreciate  his  true  interests,  and  save  a  part 
of  his  earnings.  Every  dollar  he  saves  and  accumulates  in 
the  shape  of  property,  of  whatever  kind,  will  render  him 
more  independent ;  and  the  more  independent  he  is,  the  more 
likely  he  will  be  to  get  fair  wages.  He  becomes,  to  a  certain 
extent,  a  capitalist,  and  can  measure  strength  with  capital 
on  better  terms. 

The  man  who  has  nothing  upon  which  to  subsist  to-day 
must  work  to-day,  at  whatever  price,  or  starve ;   while  he 


CHAP,  in.]  WAGES  OP  FEMALES.  263 

who  can  get  on  for  a  fortnight  without  employment  may 
choose  whether  he  will  work  for  less  than  a  fair  price 
to-day  or  not. 

This  is  a  matter  of  great  importance  to  the  laborer ;  for 
the  natural  advantage  the  capitalist  has  over  him  is,  that 
the  latter  can  wait  a  little,  while  the  former  must  work 
now.  The  laborer  or  employe  of  whatever  kind  (for  all  are 
subject  to  the  same  law)  should  strive  earnestly  to  make 
himself  as  independent  in  his  position  as  possible.  Hence, 
self-denial  and  economy,  when  exercised  by  those  who  live 
on  wages  or  salaries,  are  amply  repaid  by  better  terms  of 
service.  There  is  a  homely  adage,  "  that  a  man  is  poorer 
for  being  poor,"  which  laborers,  of  all  others,  should  bear 
in  mind. 

DISTINCTION  OP  SEX. 

Women  receive  less  wages  than  men.  This  is  doubtless 
true  in  all  the  so-called  civilized  countries.  The  difference 
may  be  stated  at  about  fifty  per  cent  to  their  disadvantage ; 
that  is,  where  the  man  receives  one  dollar,  the  woman  re- 
ceives fifty  cents.*  And  this,  too,  not  only  where  the 
services  of  the  two  sexes  differ,  but  where  they  are  iden- 
tical, as  in  school-teaching,  type-setting,  &c.  Why  this 
disparity  ? 

Political  economists,  so  far  as  we  know,  have  not  troubled 
themselves  much  about  it.  Philanthropists  have  taken  cog- 
nizance of  the  fact,  and  have  sought  to  apply  a  remedy,  but 
generally,  we  may  say  uniformly,  with  little  success.  We 
shall  not  go  at  length  into  the  subject,  only  endeavor  to 
state  the  causes  from  which  we  suppose  the  difference  arises. 
These  may  suggest  the  remedy. 

The  first  consideration  to  be  noticed  is  the  fact  that  the 

*  The  average  monthly  wages  of  male  teachers  in  the  public  schools 

of  Massachusetts,  1857-8,  was $49.87 

The  average  monthly  wages  of  female  teachers  in  the  public 

schools  of  Massachusetts,  1857-8 $19.63 


2(54  DISTRIBUTION.  [BOOK  IV. 

two  sexes  exist  in  remarkably  equal  numbers  throughout 
the  vnrorld.     There  are  as  many  women  as  men. 

The  second,  that,  while  almost  all  occupations  and  em- 
ploy mm  Is  are  accessible  to  the  male  sex,  but  comparatively 
few  are,  by  the  opinions  and  customs  of  society,  regarded 
as  proper  for  women.  One,  therefore,  has  the  whole  held 
of  life  in  which  to  act;  the  oilier  is  limited  to  a  part. 

( )n  the  principle,  then,  of  supply  and  demand,  the  number 
of  females  being  as  great  as  that  of  males,  while  their  em- 
ployments  are  so  much  fewer,  they  must  of  necessity  work 
for  less  reward.  The  supply  is  greater  than  the  effective 
demand. 

X  third  fact  is,  that  the  part  of  labor  assigned  to  women 
is  of  a  more  dispensable  character.  A  great  part  of  the 
labor  of  women  is  connected  with  the  comforts,  conve- 
niences, and  luxuries  of  life  :  hence  it  can  and  will  be 
dispensed  with,  unless  it  can  be  had  cheap.  The  staple 
productions  —  corn,  cattle,  iron,  cotton,  and  the  like  —  must 
be  had,  at  whatever  price  or  cost  of  labor ;  but  not  so  with 
the  thousand-and-one  little  articles  of  beauty,  taste,  and 
fashion  which  female  industry  creates  in  every  household. 
For  example :  suppose  a  farmer  employs  two  men  to  carry 
on  his  agricultural  labors,  and  usually  the  same  number  of 
females  in  the  work  of  the  house.  Now,  if  he  should  be  so 
pushed  for  means  as  to  be  obliged  to  dispense  with  one  of 
his  employes,  which  would  it  naturally  be,  one  of  his  hired 
men  or  hired  maids  ?  Doubtless  one  of  the  latter  ;  because, 
by  doing  so,  he  would  only  lose  some  of  the  conveniences 
and  comforts  of  life,  without,  perhaps,  much  sacrifice  of 
property ;  while,  in  the  other  case,  he  would  lose  part  of  his 
crop. 

There  seems  to  be  a  prevalent  feeling  at  the  present  day 
that  the  wages  of  woman  ought  to  be  increased ;  that  her 
position  ought  to  be  less  dependent.  But  those  who  are 
satisfied  with  the  existing  customs  and  opinions  of  society, 
by  which  the  sphere  of  woman  is  restricted  to  its  present 


CHAP.  III.]  WAGES   OF   FEMALES.  265 

limits,  ought  to  be  equally  well  satisfied  with  the  compensa- 
tion allotted  her ;  for  it  is  just  such  as  must  follow. 

No  attempt  to  enhance  her  wages  by  appeals  to  human 
sympathies  or  benevolent  organizations  need  be  attempted  ; 
for  there  is  a  law  that  overrides  all  these, —  the  law  of 
supply  and  demand ;  a  law  founded  in  nature,  inexorable 
and  immutable.  An  increase  of  her  wages  can  only  result 
from  an  increase  of  her  employments,  —  of  employments, 
too,  of  an  equally  indispensable  character  as  those  of  the 
other  sex. 

That  a  change  of  this  sort  is  fortunately  in  progress  in 
most  civilized  countries,  and  especially  in  the  United  States, 
is  apparent.  The  introduction  of  machinery  is  doing  much 
to  equalize  the  wages  of  the  two  sexes.  Water  and  steam 
are  now  made  to  accomplish  that  which  could  once  only  be 
done  by  human  strength,  leaving  the  residue  of  labor,  which 
is,  to  a  great  extent,  the  exercise  of  intelligence,  care,  and 
attention,  to  bo  performed  by  persons  of  either  sex.  Hence, 
there  is  now  a  great  demand  for  the  labor  of  females  where 
there  was  once  none  at  all.  There  is  less  demand  for 
muscle,  and  more  for  mind :  this  brings  woman  nearer  an 
equality  with  man. 

In  the  department  of  education,  too,  the  sphere  of 
women's  labor  is  vastly  extended  within  the  last  forty 
years ;  and,  from  existing  indications,  the  present  century 
will  not  close  before  a  considerable  part  of  the  business  of 
the  medical  profession  will  be  in  their  hands.  Women  are 
also  employed  extensively  in  public  offices  and  trading  es- 
tablishments. 

All  this  is  the  natural  result  of  our  civilization,  and 
especially  of  a  free  common-school  education.  In  a  great 
part  of  the  United  States,  the  same  advantages  are  furnished 
to  both  sexes.  The  consequences  are,  that  as  the  females 
are  more  docile,  have  a  quicker  apprehension,  and  are  more 
studious  generally,  they  acquire  a  better  education  in  our 
lower  schools  and  seminaries  than  the  other  sex. 


266  DISTRIBUTION.  [BOOK  IY. 


A    NEW   CLASSIFICATION   OP   WAGES. 

There  have  now  been  presented  most  of  the  considera- 
tions we  have  room  to  <jffer  in  regard  to  the  subject  before 
us,  and  in  somewhat  the  usual  manner  of  arrangement. 
We  propose,  in  conclusion,  to  give  what  may  be  a  new,  but 
as  we  think,  a  more  natural  and  scientific  classification 
of  wages. 

Properly  considered,  wages  are  paid  for  three  different 
kinds  of  power ;  viz., — 

1st,  Physical  power,  or  mere  muscular  effort  with  the 
spade,  shovel,  hoe,  and  the  like ;  the  kind  of  labor  least  ele- 
vated above  that  of  the  horse  or  ox.  This  power  is  most 
plenty,  comes  by  nature,  costs  the  least,  and  is  therefore 
cheapest.  It  would  be  so  regarded  theoretically :  it  is  so  prac- 
tically.    This  has  ever  been,  and  will  be,  the  lowest  priced. 

2d,  Mental  power.  Those  faculties  of  mind  that  give 
ability  to  manage  complicated  affairs,  the  general  operations 
of  agriculture,  manufactures,  commerce,  —  all  services,  in 
fact,  that  require  the  exercise  of  judgment,  discretion,  re- 
flection, calculation.  Such  power  is  more  rare  than  physical 
force.  It  will  therefore  command  a  higher  price,  especially 
in  a  progressive  state  of  society.  To  this  class  may  be 
referred  all  persons  of  natural  ingenuity,  inventors,  authors, 
and  men  of  genius.  Such  often  receive  great  rewards.  In 
this  class  may  be  placed  the  greater  proportion  of  those  pro- 
fessional services  which  are  subsidiary  to  production,  and 
indispensable  to  its  fullest  development. 

To  prepare  men  for  the  exercise  of  their  intellectual 
powers,  a  considerable  amount  of  education  and  training  is 
necessary.  Hence  such  powers  are  not  only  more  rare, 
but  more  expensive,  than  brute  force,  and  therefore  right- 
fully command  higher  compensation. 

3d,  Moral  power.     As  man  advances  in  civilization ;  as 


CHAP.  III.]       ANOTHER   CLASSIFICATION   OF   WAGES.  267 

wealth,  its  great  concomitant,  increases;  and  social  com- 
binations are  multiplied,  —  it  becomes  more  and  more 
necessary  that  important  trusts  should  devolve  on  individ- 
uals occupying  particular  stations.  With  all  the  checks 
and  securities  that  can  be  devised,  the  greatest  reliance 
must  ever  be  placed  on  the  character  of  the  person  to  whom 
the  trust  is  committed.  Oftentimes  the  honor  and  interests 
of  vast  bodies  of  men  must  be  committed  to  a  single  hand. 

Hence  arises  a  necessity  for  something  more  and  higher 
than  physical  and  mental  faculties  or  qualities  combined, — 
something  that  shall  furnish  a  guaranty,  irrespective  of  all 
contrivances,  that  these  high  trusts  shall  be  faithfully  dis- 
charged. That  guaranty  is  found  in  the  moral  power  of 
the  individual,  —  the  power  which  gives  such  a  control  over 
appetites,  passions,  and  propensities  as  affords  assurance 
that  under  no  circumstances  of  trial  or  temptation  will  he 
ever  depart  from  the  strictest  line  of  duty.  This  confidence 
can  be  inspired  only  by  the  conviction  that  the  individual  to 
be  trusted  has  firm,  abiding  principle  ;  that  he  will  be  hon- 
orable and  true,  not  merely  because  it  is  for  his  immediate 
interest  to  do  so,  but  because  such  are  his  sentiments  and 
convictions  that  he  cannot  be  otherwise  ;  that  no  change  of 
circumstances  will  ever  induce  him  to  deviate  from  the  path 
of  rectitude. 

When  men  are  found  possessing  this  high  moral  power 
over  themselves  and  the  accidents  of  their  position,  they 
will,  of  course,  be  called  to  places  of  responsibility  and 
trust. 

Now,  as  such  men  are  more  rare  than  those  having  only 
physical  power,  or  physical  and  mental  power  combined. 
they  will  command  higher  rewards,  —  the  highest  paid  for 
any  class  of  services. 

The  merchant  must  often  intrust  all  his  fortune  to  a 
single  confidential  clerk.  He  must  put  himself  in  the 
power  of  that  clerk  to  injure,  it  may  be  to  ruin,  if  he  will. 
Hence,  should  he  find  a  man  to  whom  of  all  others  he  is 


2G8  DISTRIBUTION.  [BOOK   IV. 

willing  to  commit  this  power,  he  will  be  disposed  —  he  can 
aflbrd  —  to  give  him  large  wages.  The  incorporated  com- 
pany, with  its  capital  of  millions,  must  put  into  the  hands 
of  its  officers,  sometimes  of  a  single  man,  its  whole  wealth. 
Ami.  after  all  the  bonds  and  guaranties  that  can  be  devised, 
reliance  must  be  mainly  placed  upon  the  moral  character  of 
the  man. 

In  affairs  of  state,  in  the  highest  public  trusts,  how 
much  must  always  depend  on  personal  honor  and  integrity! 
What  other  assurance  can  the  people  have,  that  their  ser- 
vant may  not,  under  great  temptation,  prove  recreant  to 
duty,  and  injure  and  disgrace  himself  and  his  country  ? 
Looking  at  all  rewards  in  the  light  of  political  economy,  it 
is  here  that  we  find  the  highest  plane  of  human  effort. 
*  It  may  be  objected  to  this  new  classification  of  labor,  that 
we  confound  economic  with  moral  science,  and  depart  from 
our  appropriate  sphere.  We  reply,  that  men,  if  truly 
moral,  are  so  not  because  it  is  profitable,  not  because  it 
will  enlarge  the  value  of  their  services,  but  because  it  is 
right,  because  they  love  integrity  for  its  own  sake.  This 
must  be  their  motive,  or  their  morality  has  no  reliable  foun- 
dation. Yet  from  this  cause  it  occurs  that  their  services 
are  more  desirable,  and  they  will  receive  greater  remunera- 
tion,—  will  be  paid  for  honesty  as  truly  as  for  intelligence, 
activity,  and  strength.  So  a  man  must  preserve  his  health, 
if  he  would  receive  wages  for  even  the  lowest  form  of  labor; 
but  that  will  not  be  his  motive.  The  love  of  life  and  the 
pleasures  of  health  will  form  the  grand  consideration  in  his 
mind  why  he  should  abstain  from  all  that  will  impair  his 
physical  energies ;  yet,  as  a  consequence,  he  secures  the 
ability  to  command  wages,  and  is  paid  for  his  abstinence 
and  discretion. 

We  cannot,  therefore,  acknowledge  the  validity  of  the 
objection  to  that  which  seems  to  us  the  most  natural  and 
scientific  classification  of  wages. 


CHAP.  IV.]  LABOR   COMBINATIONS.  269 

CHAPTER  IV. 

LABOR     COMBINATIONS. 

In  connection  with  the  subject  of  wages,  it  seems  neces- 
sary to  inquire  somewhat  in  regard  to  the  rights  of  the 
laborer,  since  upon  these  his  compensation  must  to  some 
extent  depend. 

Under  a  government  acknowledging  the  rights  of  all  men. 
the  laborer  must,  of  course,  have  the  same  rights  as  his 
fellow-citizens,  neither  more  nor  less.  He  asks  no  favor, 
and  grants  none.  He  demands  the  same  justice,  the  same 
freedom,  accorded  to  others.  He  should  be  able,  so  far  as 
law  is  concerned,  to  work  when  and  for  whom  he  choos 
and  for  such  consideration  as  he  can  get  in  the  great  com- 
petition of  industry.  The  law  cannot  say  how  much  he 
shall  accept  for  wages,  how  many  hours  shall  constitute  a 
day's  work,  nor  how  much  the  employer  shall  give  him. 
Each  is  left  perfectly  free,  and  the  competition  is  simply 
between  labor  and  capital. 

But  the  laborer  is  not  under  obligation  to  act  as  an  in- 
sulated individual,  any  more  than  the  capitalist.  If  the 
latter  is  permitted,  and  even  authorized  and  encouraged, 
to  combine  with  his  fellows  in  order  to  enhance  the  power 
and  profits  of  capital,  it  is  equally  the  right  of  the  laborer 
to  do  the  same,  and  equally  the  duty  of  the  legislator  to 
give  him  any  facilities  for  doing  this  he  may  justly  demand. 

If  capital  is  incorporated,  labor  should  have  the  same 
privilege.  If  favors  in  any  case  are  awarded  to  one  party, 
they  should  certainly  be  furnished  to  the  other. 

Laborers,  then,  may  combine,  if  they  deem  it  best  to  ait 
in  concert  in  regard  to  their  interests. 

As  a  matter  of  fact,  they  do  form  associations  for  mutual 
benefit.     In  England,  these  "  friendly  societies,"  as  they 


270  DISTRIBUTION.  [BOOK   IV. 

are  called,  are  numerous,  and  often  exert  a  very  happy 
influence.  They  are  formed  for  a  great  variety  of  specified 
objects.     One  class,  for  example,  provide, — 

1st,  For  assisting  members  when  they  are  obliged  to 
travel  in  search  of  employment. 

2d,  For  granting  temporary  relief  to  members  in  dis- 
tressed circTimstances. 

3d,  For  the  relief  and  maintenance  of  members  in  case 
of  blindness,  lameness,  or  bodily  hurt  through  accident. 

4th,  For  the  purchase  of  necessaries  to  be  supplied  to 
the  members. 

5th,  For  the  purpose  of  assuring  the  members  against 
loss  by  disease  or  death  of  cattle  employed  in  trade  or 
agriculture. 

6th,  For  the  purpose  of  accumulating  at  interest,  for  the 
use  of  the  member,  the  surplus  fund  remaining  after  pro- 
viding for  his  assurance. 

Some  societies  provide  for  a  variety  of  other  contingen- 
cies,—  sickness,  old  age,  and  death.  These  associations 
are  so  numerous  and  important  in  Great  Britain  that  the 
government  has  appointed  a  registrar  (John  Tidd  Pratt, 
Esq.)  for  their  general  supervision,  and  his  reports  are 
annually  made  to  Parliament.  All  associations  like  these, 
if  properly  managed,  have  a  tendency,  not  only  to  relieve 
the  misfortunes  of  the  laboring  classes,  but  to  enhance  their 
wages  by  making  them  more  independent. 

Societies  are  also  formed  for  the  diffusion  of  intelligence 
amongst  these  classes,  and  for  their  moral  and  social  eleva- 
tion, —  like  temperance  associations,  lyceums,  mechanics' 
institutes,  &c.  These,  too,  have  the  effect  to  influence 
favorably  the  rate  of  wages,  since  they  tend  to  bring  labor- 
ers more  upon  a  level  with  the  more  favored  classes,  to 
increase  their  intelligence,  and  especially  to  divert  them 
from  low  and  degrading  occupations  and  amusements. 

Associations  of  this  kind  will,  in  the  progress  of  events, 
undoubtedly  contribute  more  and  more  towards  an  equal 


CHAP.  IV.]  LABOR   COMBINATIONS.  271 

distribution  of  the  wealth  which  labor  produces  in  conjunc- 
tion with  capital,  provided  they  are  formed  for  proper  pur- 
poses, and  conducted  in  an  orderly  manner. 

trades'  unions. 

One  of  the  forms  in  which  these  associations  make  their 
appearance  is  that  of  trades'  unions.  The  principal  object 
of  these,  generally,  is  the  increase  of  wages.  The  differ- 
ent trades  often  combine  for  this  purpose,  and  endeavor 
to  fix  the  rate  at  which  they  will  work.  This,  it  would 
seem,  they  have  an  undoubted  right  to  do :  whether  it  be 
good  policy  is  another  question. 

Men  may  mutually  agree,  for  example,  that  they  will  work 
only  ten  hours  per  day,  and  will  have  two  dollars  per  day 
as  wages.  All  who  voluntarily  join  such  an  agreement  are 
in  honor  bound  to  keep  it ;  and,  if  the  association  binds 
itself  to  support  those  who  are  turned  out  of  employment, 
they  have  also  the  undoubted  right  so  to  do. 

But,  while  all  this  is  conceded,  it  does  not  follow,  that,  if  a 
member  violates  the  rules  of  the  society,  his  associates  may 
inflict  any  punishment  upon  him  for  doing  so,  except  such 
as  the  law  of  the  land  authorizes.  A  trade's  union  is  not 
an  imperium  in  imperio.  It  has  all  the  rights  which  each 
individual  member  has,  and  no  more.  Hence  any  attempt 
to  inflict  punishment  upon  such  delinquent  is  as  much  an 
infringement  of  his  rights,  and  of  the  laws  of  the  country, 
as  if  it  were  done  by  an  individual. 

Again :  nor  has  a  trade's  union  any  right  whatever, 
moral  or  legal,  to  interfere  in  any  manner  with  those  of  their 
craft  who  do  not  choose  to  enter  into  their  association.  If 
such  persons  prefer  to  work  at  a  less  rate  of  wages  than  that 
established  in  the  tariff  of  the  union  rather  than  not  work 
at  all,  they  have  the  most  unquestionable  right  to  do  so ; 
and  any  attempt  to  prevent  them  by  brute  force  is  an  in- 
fringement of  personal  rights  which  government  is  bound  to 
resist  to  the  utmost.     Such  an  act  is  merely  the  act  of  a 


272  DISTRIBUTION.  [BOOK    IV. 

mob,  and  lias  no  justification.  Nay.  more  :  under  a  free  gov- 
ernment, where  these  very  men  who  have  thus  combined 
arc  citizens,  with  the  right  of  suffrage,  and,  in  common  with 
others,  elect  those  who  enact  the  laws  under  which  they 
live,  any  outrage  of  this  kind  is  an  overt  act  of  moral  trea- 
son against  republican  institutions.  It  is  a  virtual  declara- 
tion that  these  institutions  have  failed,  and  must  fail,  to  give 
adequate  protection,  and  therefore  these  aggrieved  parties 
are  obliged  to  resort  to  violence ;  in  other  words,  to  over- 
ride the  government,  the  Constitution,  and  the  laws. 

STRIKES. 

The  foregoing  argument  covers  the  whole  ground  of  right 
or  wrong  in  regard  to  strikes. 

Members  of  a  trade's  union,  believing  that  their  wages 
are  inadequate  or  less  than  their  employers  can  well  afford, 
by  mutual  agreement  strike  for  higher  wages.  If  not  grant- 
ed, they  turn  out.  To  produce  effect,  and  aid  in  obtaining 
what  they  demand,  they  parade  the  streets  with  banners 
and  music.  Very  well,  so  far  ;  for  other  associations  do  the 
same,  whenever  they  see  fit.  If  these  demonstrations  do 
not  interfere  with  the  general  avocations  and  pursuits  of  the 
public,  there  can  be  no  reasonable  complaint.  The  economy 
and  utility  of  such  demonstrations  is  another  matter ;  but 
the  right  to  make  them  need  not  be  disputed. 

But  when,  in  addition  to  this,  a  procession,  instead  of 
peaceably  passing  through  the  streets,  proceeds  to  compel 
by  force  every  person  engaged  in  a  particular  trade  to  quit 
his  employment,  the  case  is  entirely  altered.  The  proces- 
sion has  become  a  lawless  mob,  and  is  to  be  dealt  with 
like  any  other  body  of  men  disturbing  the  public  peace. 

All  demonstrations  of  violence,  of  this  kind,  are  in  utter 
antagonism,  not  only  to  the  institutions  of  society  in  gen- 
eral, but  to  the  real  and  permanent  interests  of  the  party 
which  makes  them.  They  do  harm,  and  only  harm,  in  the 
long-run,  both  economically  and  morally,  and  degrade,  in- 


CHAP.  IV.]  LABOR   COMBINATIONS.  273 

stead  of  elevating,  the  laboring  classes,  who  really  have 
much  to  hope  from  their  associations  of  various  kinds,  if 
they  be  peacefully  and  properly  conducted.  There  is  no 
one  thing  by  which  the  interests  of  the  laborer  can  be  more 
effectually  promoted  than  by  associations  for  good  and  use- 
ful purposes,  managed  in  a  sensible  and  becoming  manner ; 
and,  on  economical  as  well  as  moral  and  social  considera- 
tions, they  would  then  be  worthy  the  approbation  and  pat- 
ronage of  the  capitalist,  whose  interests  would  be  promoted 
thereby :  but  it  should  ever  be  remembered  that  individu- 
ality is  to  be  interfered  with  as  little  as  possible,  since  the 
more  there  is  of  individual  responsibility,  socially  and  politi- 
cally, the  better ;  the  less  men  are  called  upon  to  resign 
their  freedom  of  action  and  personal  reliance  and  choice  in 
the  various  duties  and  emergencies  of  life,  the  more  advan- 
tageous to  their  welfare  and  happiness. 

But  strikes  cannot  permanently  raise  the  rate  of  wages. 
Combinations  of  workmen,  taking  advantage  of  the  peculiar 
state  of  trade  when  commodities  are  in  great  demand,  may, 
for  the  moment,  extort,  from  the  necessities  of  their  em- 
ployers, an  addition  to  their  compensation  ;  but  they  gain  no 
substantial  advantage.  When  trade  becomes  dull,  they  are 
certain  to  be  placed  again  in  the  power  of  the  employer. 
Especially  is  it  injurious  to  the  interests  of  the  workmen, 
where  by  strikes  they  have  forced  out  of  employment  large 
numbers,  whom  they  are  obliged  to  support  out  of  previous 
accumulations.  In  such  cases,  they  consume  their  own 
little,  savings,  injure  the  interests  of  those  who  have  em- 
ployed them,  and  render  them  less  able  to  pay  wages  in  the 
future. 

Freedom,  protection,  and  justice  are  what  labor  needs, 
and  must  have,  or  its  condition  will  be  depressed,  and  its 
productiveness  diminished.  With  freedom,  the  laborer  can 
work  for  whom  he  will :  with  the  ballot,  he  can  insure  to 
himself  and  his  interests  protection  and  justice. 

18 


274  DISTRIBUTION.  [BOOK   IV. 


CO-OPERATIVE   ASSOCIATIONS. 

There  is  yet  another  mode  in  which  those  who  depend 
upon  wages  may  secure  very  great  advantages  to  themselves ; 
viz.,  by  co-operative  associations,  formed  for  trading  or  in- 
dustrial purposes.  These  are  already  somewhat  extensively 
introduced  into  the  United  States  ;  and,  so  far  as  are  known, 
have  been  attended  with  a  good  degree  of  success.  Mr. 
Fawcett  (now  M.P.),  in  his  "  Manual  of  Political  Econo- 
my," has  given  a  very  full  and  interesting  account  of  the 
operation  of  certain  co-operative  societies  in  Europe,  from 
which  we  extract  the  following  :  — 

"  The  co-operative  movement  in  England  was  first  commenced 
at  Rochdale.*  About  1844,  a  few  working-men  in  that  town  sus- 
pected, and  no  doubt  justly  so,  that  they  were  paying  a  high  price 
for  tea,  sugar,  and  other  such  articles,  when  they,  at  the  same  time, 
believed  they  were  not  free  from  adulteration.  They  therefore  said, 
'  "Why  should  we  not  club  together  sufficient  amongst  ourselves  to 
purchase  a  chest  of  tea  and  a  hogshead  of  sugar  from  some  whole- 
sale shop  in  Manchester  ? '  This  they  did  ;  and  each  one  of  their 
number  was  supplied  with  tea  and  sugar  from  this  common  stock, 
paying  ready  money  for  it,  and  giving  the  same  price  for  it  they  had 
been  charged  at  the  shops.  When  all  the  tea  and  sugar  had  thus 
been  sold,  they  agreed  to  divide  the  money  thus  realized  amongst 
themselves,  in  proportion  to  the  capital  each  had  subscribed.  They 
found,  to  their  surprise,  that  a  large  profit  had  been  realized.  The 
great  advantage  of  the  plan  became  self-evident ;  for  not  only  were 
they  provided  with  a  lucrative  investment  for  their  savings,  but 
they  obtained  unadulterated  tea  and  sugar  at  the  same  prices  they 
had  been  previously  obliged  to  pay  for  the  same  articles  when  their 
quality  was  deteriorated  by  all  kinds  of  adulteration.  A  fresh  stock 
of  tea  and  sugar  was,  of  course,  purchased.  Other  laborers  were 
quickly  attracted  to  join  the  plan,  and  subscribe  their  savings  ;  soon 
the  society  was  sufficiently  extended  to  justify  them  in  taking  a 
room,  which  they  used  as  a  store,  and  the  success  of  the  plan  fully 
kept  pace  with  its  enlargement. 

*  The  residence  of  John  Bright,  M.P.,  and  where  his  family  carry  on  a 
large  manufacturing  business.  A.  w. 


CHAP.  IV.]  LABOR   COMBINATIONS.  275 

"  In  1856,  this  society,  now  famous  as  the  Rochdale  Pioneers,  pos- 
sessed a  capital  of  about  £12,800.  The  business  was  not  long 
restricted  to  articles  of  grocery :  bread,  meat,  and  clothing  were  all 
sold  on  the  same  plan.  Their  capital  so  rapidly  increased,  that  they 
were  soon  enabled  to  erect  expensive  flour-mills  ;  and  a  supply  of 
pure  bread,  as  well  as  unadulterated  tea,  was  thus  insured.  Dur- 
ing the  last  few  years,  this  Pioneers'  society  has  attracted  frequent 
public  attention ;  for  it  has  gradually  grown  into  a  vast  commercial 
institution,  embracing  a  great  variety  of  trades.  At  the  present 
time  (1863),  its  capital  is  £32,000,  the  amount  of  business  done  is 
£170,000,  and  the  profits  realized  twenty  per  cent.  The  general 
management  of  this  society,  and  the  mode  in  which  the  profits  are 
distributed,  are  both  excellently  arranged.  A  ready-money  system 
is  so  scrupulously  adhered  to,  that  even  a  large  shareholder  cannot 
make  the  smallest  purchase  on  credit.  The  managers  of  the  busi- 
ness are  chosen  by  the  general  body  of  shareholders  ;  and,  in  almost 
every  case,  an  excellent  selection  has  been  made.  The  accounts  are 
made  up  quarterly,  and  placed  before  the  general  meeting.  Lon- 
don accountants  have  audited  these  accounts ;  and  they  express  a 
unanimous  opinion  that  no  business  in  the  country  is  better  con- 
ducted. With  regard  to  distribution  of  the  profits,  a  sufficient  sum 
is  at  first  allotted  to  pay  a  dividend  of  five  per  cent  on  the  capital ; 
the  remaining  profits  are  divided  on  the  following  plan:  Every 
person,  when  he  purchases  goods,  receives  one  or  more  tin  tickets, 
on  which  is  recorded  the  amount  of  his  purchases.  At  the  end  of 
every  quarter,  each  person  brings  these  tin  tickets,  which  form  the 
record  of  his  aggregate  purchases ;  and  the  remaining  profits  are 
distributed  in  proportion  to  the  aggregate  amount  which  each  indi- 
vidual has  expended  at  the  store.  Thirteen  pence  in  the  pound 
(equal  to  about  five  and  a  half  per"  cent  on  the  amount  purchased) 
is  the  average  amount  which,  in  this  manner,  is  received  as  a  draw- 
back." 

Professor  Fawcett  then  proceeds  to  give  the  causes  of 
this  remarkable  financial  success :  — 

"  The  ready-money  system,  invariably  adopted  by  these  societies, 
has  probably  promoted  their  prosperity  more  than  any  other  cir- 
cumstance. All  bad  debts  are  thus  avoided ;  and,  where  credit  is  not 
given,  a  certain  amount  of  business  can  be  transacted  with  much 
less  capital  than  would  be  required  if  large  sums  were  locked  up  in 


276  DISTRIBUTION.  [BOOK   IV. 

book -debts.  Under  a  ready-money  system,  the  same  capital  may  be 
turned  over  perhaps  twenty  times  a  year ;  and,  if  one  per  cent  only 
is  realized  upon  such  transaction,  the  capital  will  sum  an  aggregate 
profit  of  twenty  per  cent  in  the  course  of  the  year.  When  goods 
are  sold  for  ready  money,  they  can  be  bought  for  ready  money  from 
wholesale  dealers.  This  is  always  a  guaranty  that  the  purchases 
will  be  made  on  the  most  favorable  terms.  Again:  the  sharehold- 
ers of  the  society  form  a  nucleus  of  customers ;  and  therefore,  di- 
rectly business  is  commenced,  a  certain  amount  of  trade  is  insured. 
If  an  individual  commences  business,  he  must  attract  customers 
either  by  advertising  or  costly  shop-fronts  ;  he  is  compelled  to  con- 
duct his  business  in  crowded  thoroughfares,  where  rents  are  ex- 
tremely high  :  but  a  co-operative  society  is  saved  all  these  expenses. 
Its  shareholders  are  its  customers  ;  it  therefore  need  not  advertise ; 
it  does  not  require  a  showy  building ;  for  its  position  is  rather  in  the 
centre  of  the  homes  of  the  laboring  population.  These  and  other 
advantages  sufficiently  account  for  the  large  profits  which  have 
been  realized,  not  only  by  the  Rochdale  co-operative  store,  but  by  a 
great  number  of  similar  societies,  situated  in  almost  every  other  part 
of  the  country." 

The  author  here  enumerates  a  long  list  of  different  places 
in  which  these  stores  are  established,  as  Manchester,  Hud- 
dersfield,  Dover,  Blackburn,  &c.  He  then  proceeds  to 
state  some  of  the  advantages  of  these  institutions  :  — 

"  The  advantages  which  the  working  classes  derive  from  a  co 
operative  store  are  apparent.    In  the  first  place,  it  provides  them  with 
a  most  eligible  investment  for  their  savings.     This  is  important, 
because  the  absence  of  good  opportunities  for  investing  small  sav- 
ings operates  powerfully  to  increase  the  improvidence  of  the  poor." 

Again,  he  says  :  — 

"  The  co-o perative  principle,  when  applied  to  trade  and  manu- 
factures, enables  the  laborer  to  support  his  industry  with  his  own 
capital,  and,  in  this  manner,  to  rise  from  the  mere  status  of  a  hired 
laborer.  .  .  .  There  can  be  no  doubt  that  these  societies  promote  a 
most,  healthy  social  intercourse  between  workmen ;  for,  at  frequent 
meetings,  the  shareholders  consult  each  other  upon  matters  of  busi- 
ness. They  have  to  show  their  discrimination  in  selecting  the  propei 
persons  to  be  managers ;  and,  in  fact,  the  experience  of  the  Roch- 


CHAP.  IV.]  LABOR   COMBINATIONS.  277 

dale  store  proves  that  a  co-operative  society  can  succeed  in  carry- 
ing out  many  a  social  improvement,  which  would  not  otherwise  be 
introduced.  Thus,  two  and  a  half  per  cent  of  the  profits  realized 
at  Rochdale  support  an  excellent  reading-room  and  library,  which 
the  shareholders,  as  well  as  their  wives  and  families,  are  permitted 
to  use  gratuitously  ;  the  society  organizes  excursions,  and  often  per- 
forms some  united  work  of  charity :  not  long  since,  its  members 
presented  a  magnificent  di'inking-fountain  to  their  fellow-townsmen. 
A  co-operative  store  may,  moreover,  become  a  particularly  power- 
ful agent  in  benefiting  the  working  classes,  because  it  can  be  con- 
ducted on  the  smallest  possible  scale.  The  experiment  can  be  made 
without  involving  any  expense :  any  half-dozen  working-men  may 
try  the  plan,  as  it  was  tried  in  1844  at  Rochdale,  by  clubbing  to- 
gether sufficient  to  purchase  a  chest  of  tea  from  a  wholesale  grocer. 
If  their  first  effort  is  successful,  they  may  gradually  develop  their 
plan,  until,  at  length,  it  becomes  a  great  and  important  trading  es- 
tablishment." 

The  same  writer  gives  the  following  account  of  an  indus- 
trial co-operative  association :  — 

"  A  small  society  of  co-operative  masons  was  established  in  1848, 
in  Paris.  This  society  was  reproached  for  holding  certain  political 
opinions,  and  the  government  attempted  to  discourage  it  by  refus- 
ing to  loan  any  capital.  This  intended  hostility  secured  its  future 
success ;  for  the  societies  which  were  assisted  by  the  government, 
in  almost  every  instance,  proved  to  be  failures.  The  co-operative 
masons  endured  many  vicissitudes ;  and,  in  the  year  1852,  they  de- 
termined to  re-organize  their  society.  It  then  consisted  of  only  sev- 
enteen members,  and  borrowed  no  capital.  They  resolved  to  create 
a  capital,  by  depositing  in  a  common  chest  one-tenth  of  their  daily 
earnings.  At  the  end  of  the  first  year,  a  capital  of  fourteen  pounds 
and  ten  shillings  was  in  this  manner  created.  At  the  end  of  1854, 
the  capital  had  increased  to  six  hundred  and  eighty  pounds ;  and, 
in  1860,  consisted  of  one  hundred  and  seven  members,  and  the  cap- 
ital possessed  by  them  was  fourteen  thousand  and  five  hundred 
pounds.  The  Hotel  Fould,  the  Hotel  Rouher,  the  Hotel  Fres- 
cati,  &c.,  &c,  were  erected  by  this  industrial  association.  At 
the  present  time,  these  co-operative  masons  are  building  an  hotel 
for  M.  Girardin,  on  the  Boulevard  of  the  King  of  Rome,  and  an 
hotel  at  Montrouge,  for  M.  Pacotte.     No  laborers,  except  the  share- 


278  DISTRIBUTION.  [BOOK   IV. 

holders,  are  employed  by  the  society.  The  laborers  are  paid  the 
ordinary  wages,  current  in  the  trade,  and  the  net  profits  real- 
ized are  proportioned  in  the  following  manner :  two-fifths  of  these 
profits  form  a  fund,  from  which  the  annual  dividend  is  paid ;  and 
the  remaining  three-fifths  are  appropriated  to  provide  an  extra  bo- 
nus on  labor.  The  bonus  each  laborer  thus  receives  is  proportioned 
to  the  amount  of  lubor  he  has  performed  throughout  the  year.  No 
arrangements  that  could  be  devised  would  more  powerfully  promote 
the  efficiency  of  labor.  This  is  the  secret  of  the  remarkable  suc- 
cess achieved  by  this  society." 

The  advantages  of  these  associations  is  further  stated,  as 
follows :  — 

"  In  the  first  place,  it  may  be  observed  that  the  laborers  receive 
the  whole  profits  which  result  from  their  industry ;  for  they  supply 
the  capital  which  is  required.  Another  most  important  effect  seems 
likely  to  result  from  these  associations  ;  for  they  appear  to  hold  out 
a  fair  prospect  of  correcting  a  very  disadvantageous  tendency,  which 
is  associated  with  the  present  rapid  accumulation  of  wealth.  For 
we  have  previously  remarked  that  each  year  the  production  of 
wealth  is  conducted  on  a  greater  scale  :  manufactories  are  enlarged, 
farms  are  extended  in  area,  and  in  every  branch  of  industry  there 
are  those  that  seem,  from  the  very  vastness  of  their  capital,  to  mo- 
nopolize the  additional  profit,  and  thus  compel  the  smaller  producer 
to  succumb.  Hence,  each  year  it  becomes  more  difficult  for  the 
laborer  to  engage  in  any  industry  on  his  own  account.  .  .  .  Hence, 
the  industry  of  the  country  must  be  conducted  by  two  distinct  class- 
es ;  namely,  employers  who  supply  the  capital,  and  workmen  who 
provide  labor ;  unless  those  who  labor  agree  to  form  themselves 
into  associations,  and  subscribe  amongst  themselves  sufficient  capi- 
tal to  carry  on  production  upon  a  large  scale.  It  must  be  quite 
evident,  that  co-operative  trading  establishments,  when  successful, 
as  it  were  intensify  many  advantages  which  laborers  derive  from 
co-operative  stores.  But  we  have  separately  described  these  two 
classes  of  institutions,  because  we  think  that  the  success  of  the  for- 
mer may  be  imperilled  by  many  circumstances  which  do  not  affect 
the  latter.  In  fact,  we  have  already  stated,  that,  in  the  case  of  a 
co-operative  store,  success  may  almost  be  guaranteed.  .  .  .  But  the 
case  is  very  different  with  regard  to  a  co-operative  society  carrying 
on  some  branch  of  industry  for  profit." 


CHAP.  V.]  PEOFITS.  279 

This  the  writer  shows  to  be  more  hazardous.  He  gives, 
in  connection  with  this,  a  statement  of  a  very  successful 
agricultural  co-operative  enterprise,  commenced  some  thirty 
years  since,  in  which  the  results  were  in  the  highest  degree 
satisfactory. 

The  description  here  given,  by  Professor  Fawcett,  of  co- 
operative societies  abroad,  furnishes  satisfactory  evidence  of 
their  feasibility,  and  the  great  advantages  the  laboring  class- 
es may  derive  from  them.  If  true  to  their  interests,  they 
will  direct  their  attention  to  the  formation  of  such  associa- 
tions in  this  country.  By  so  doing,  they  will  violate  no 
legal  enactment,  in  no  way  disturb  the  public  peace,  or  in- 
terfere with  the  laws  of  trade.  They  will  simply  avail  them- 
selves of  their  just  rights,  for  the  use  of  the  power  which 
legitimately  belongs  to  them. 


CHAPTER  V. 

PROFITS. 

By  the  term  "  profits,"  we  mean  that  share  of  wealth  which, 
in  the  general  distribution,  falls  to  those  who  effect  an  ad- 
vantageous union  between  labor  and  capital. 

All  wealth,  being  the  product  of  labor  and  capital,  would 
be  divided  between  them,  were  it  not  necessary  that  still 
another  agent  should  take  part  in  production  ;  viz.,  an 
employer,  manager,  undertaker*  (entrepreneur),  projector, 
contractor,  business  man,  merchant,  manufacturer,  farmer, 
or  whatever  else  he  may  be  called,  whose  services  are  indis- 
pensable. 

Capital  cannot  move  itself;  labor  cannot  command  capi- 

*  "  It  is  to  be  regretted,"  says  J.  Stuart  Mill,  "  that  this  word,  in  this  sense, 
is  not  familiar  to  the  English  ear.  French  political  economists  enjoy  a  great 
advantage  in  being  able  to  speak  of  les  profits  de  I' entrepreneur." 


280  DISTRIBUTION.  [BOOK   IV. 

tal,  and  therefore  has  little  power :  hence  the  necessity  for 
an  employer,  or  business  man,  to  effect  a  union,  and  put  both 
ill  successful  operation.  Capital  without  labor  is  an  infant; 
labor  without  capital,  a  cripple. 

The  parties,  then,  to  production  are,  (1)  the  laborer ;  (2) 
the  capitalist ;  (8)  the  employer,  or  manager.  Each  has  a 
distinct  province,  and  a  separate  interest;  and  each  must 
receive  his  reward,  or  share  of  the  general  product. 

This  is,  undoubtedly,  the  natural  division  of  the  subject. 
To  confound  the  capitalist  with  the  employer,  as  often  is 
done,  throws  the  whole  matter  into  confusion.  There  is  no 
occasion  whatever  for  this.  The  man  who  owns  the  capital, 
and  receives  his  compensation  for  its  use  in  the  shape  of 
rent,  or  interest;  the  laborer,  who  applies  muscular  or  men- 
tal power  to  the  production  of  value ;  and  the  man  who,  as 
employer  or  manager,  relieves  the  first  from  the  anxiety  and 
risks  of  trade,  and  furnishes  the  second  with  the  means  by 
which  alone  he  can  work  to  advantage,  —  are  separate  per- 
sons, with  distinct  interests. 

The  capitalist,  as  such,  has  no  share  in  the  profits  of  busi- 
ness. He  does  nothing  but  loan  his  wealth,  which,  by  the 
value  of  its  services,  brings  him  an  income,  in  the  shape  of 
rent  for  real,  or  interest  for  personal  estate.*  If  he  is  care- 
ful in  regard  to  the  securities  he  takes  or  the  credit  he 
gives,  it  is  of  no  immediate  consequence  to  him  whether 
trade  is  dull  or  brisk,  whether  profits  are  high  or  low  :  but, 
of  course,  it  is  true  that  the  capitalist  has  a  general  interest 
in  the  profits  of  business,  to  this  extent,  —  that  unless  prof- 
its, in  the  long-run  and  on  the  average,  are  such  that  the 
business  man  can  afford  to  pay  the  usual  rate  of  interest, 
the  compensation  of  the  capitalist,  or  his  share  in  the  general 
distribution,  must  be  reduced.  He  must  rent  or  loan  his 
capital  on  such  terms  as  those  who  employ  it  can  afford, 

*  The  term  "personal  estate,"  in  distinction  from  real  estate  (land,  build- 
ings, and  the  like),  is  generally  used  in  the  United  States  to  describe  every 
kind  of  movable  property,  and  all  evidences  of  debt. 


CHAP.  V.]  PROFITS.  281 

over  and  above  all  the  charges  and  hazard  of  business,  be- 
sides making  a  satisfactory  profit.  On  the  other  hand,  to 
the  employer,  in  whatever  department  of  business,  the  ques- 
tion of  profits  is  vital.  His  success  depends  upon  the 
amount  he  can  secure,  after  meeting  all  his  necessary  ex- 
penditures for  labor,  rent,  interest,  taxes,  insurance,  bad 
debts,  &c. 

It  often  happens  that  the  employer  (manufacturer,  mer- 
chant, &c.)  is  the  owner,  in  whole  or  in  part,  of  the  capital 
used.  This  in  no  wise  alters  the  case  ;  for  then  he  receives 
income  both  for  his  capital  and  his  labor,  or  efforts.  He 
saves  all  the  interest  he  would  otherwise  pay  to  the  capi- 
talist ;  he  pays  interest  to  himself.  He  may  own  the  build- 
ings he  occupies ;  and  in  so  far  he  is  a  capitalist,  paying 
rent  to  himself. 

It  is,  then,  by  this  triple  alliance  of  enterprise,  capital,  and 
labor  that  all  production  is  effected ;  and  between  them,  in 
the  final  result,  it  should  be  shared.  The*  economical  ques- 
tion is,  How  shall  an  equitable  division  be  attained  ? 

We  have  previously  said,  in  relation  to  capital  and  labor, 
that  there  must  be  a  just  proportion  of  each  to  the  most  effi- 
cient production,  —  sufficient  labor  for  the  capital,  and  capital 
for  the  labor :  so  there  must  be  sufficient  enterprise,  busi- 
ness talent,  and  tact  to  use  both  ;  and  the  several  parties 
must  be  left  to  act  voluntarily,  under  the  instincts  of  human 
nature  and  the  laws  of  value.  Indeed,  the  great  difference 
in  the  wealth  of  nations  is  made  by  the  business  class  :  mind 
is  more  effective  than  muscle.  Each  party,  too,  must  be 
protected  in  his  just  rights,  and  be  insured  against  the  en- 
croachments of  the  other.  No  advantage  should  be  given 
by  legal  enactments  to  either.  The  capitalist  should  be  free 
to  loan  his  money  to  whom  he  will,  and  at  whatever  rate  he 
can  get ;  the  employe,  to  work  for  whom  he  pleases,  and  at 
such  compensation  as  he  can  obtain  by  the  competition  of 
employers.  If  the  laws  allow  capitalists,  by  concentrating 
their  wealth,  to  increase  its  power,  laborers  should  have  a» 


282 


DISTRIBUTION. 


[BOOK  IV. 


equal  right  to  combine  their  efforts ;  and  employers  should 
be  free  to  secure  the  services  of  either,  on  the  best  terms 
they  can. 

With  this  perfect  equality,  each  will  certainly  obtain  the 
share  that  belongs  to  him.  Laws  in  regard  to  this,  as  all 
other  property  relations,  are  not  needed  to  direct  human  in- 
dustry, but  to  control  human  passion ;  to  prevent  one  party 
from  trespassing  upon  the  rights  of  the  other. 

All  these  parties  are  equally  necessary.  In  one  respect, 
labor  has  the  advantage,  since  it  can  accomplish  a  little 
without  capital,  while  capital  can  produce  nothing  without 
labor.  On  the  other  hand,  capital  can  rest,  without  extinc- 
tion ;  while  labor,  if  not  employed,  will  soon  perish  by  star- 
vation. 

It  has  been  common  to  speak  of  the  profits  of  capital,  in- 
stead of  the  profits  of  business.  This  is  a  mistake  which 
confounds  necessary  distinctions.  The  profits  of  trade,  or 
business,  are  to  be  reckoned  upon  the  amount  transacted,  not 
upon  the  capital  employed.  The  difference  between  the  two 
modes  is  often  very  great. 

"We  give  the  following  table  as  an  illustration  of  what  we 
mean :  — 

An  Illustration  of  the  Difference  of  Profits  as  computed  on  the  Capital  employed  or 
the  Business  transacted. 


Capital 
kmploted. 

Sales. 

Rate  of  Profits 
on  Sales. 

Gross 
Profits. 

Expenses, 
including 
Interest. 

Net  Profits. 

Net  Profits, 
if  reckoned 
on  Capital. 

Net  Profits, 

if  reckoned 

on  Business 

done. 

$100,000 
20,000 
10,000 
50,000 

$500,000 

150,000 

30,000 

350,000 

15  per  cent 
10   „     „ 
30   „     „ 

5   „      ,, 

$75,000 

15,000 

9,000 

17,600 

$25,000 
7,500 
2,000 
7,500 

$50,000 

7,500 

7,000 

10.000 

50  per  cent 
37i„     „ 
70   „     „ 
20    „      „ 

10  per  cent 

5   „      „ 
26?  „      „ 

21*  „      „ 

The  actual  transactions  of  business  present  an  endless 
variety,  of  which  the  above  may  be  taken  as  samples. 

The  object  aimed  at  by  the  business  man  is  to  get  as 
large  a  net  profit  to  himself  as  possible,  irrespective  of  the 


CHAP.  V.]  PROFITS.  283 

per  centum  of  profit  on  the  capital  employed.  On  his  capi- 
tal, if  borrowed,  he  pays  the  interest ;  if  he  owns  it,  he  com- 
putes the  interest  as  a  part  of  his  expenses,  reckoning  the 
latter  as  the  income  on  his  capital. 

RATE   OP   PROFITS. 

There  is  a  constant  tendency,  in  the  progress  of  society, 
to  a  decline  in  the  rate  of  profits ;  i.e.,  as  has  just  been  said, 
of  profits  upon  business  done. 

1st,  From  the  acceleration  of  exchanges,  or  the  rapidity 
with  which  capital  is  used  ;  in  consequence  of  which,  the 
same  absolute  remuneration  can  be  obtained  with  less 
charge  on  each  transaction. 

2d,  From  the  increasing  number  of  those  who,  by  educa- 
tion and  training,  are  qualified  for  independent  business. 

3d,  From  increasing  facilities  for  intercourse  by  steam, 
on  land  and  sea,  and  the  consequent  diffusion  of  intelligence 
in  regard  to  prices  and  markets. 

The  rate  of  profit  can  never  be  arbitrarily  fixed  where 
there  is  free  competition,  any  more  than  the  wages  of  labor ; 
yet  in  a  given  country,  or  mart  of  trade,  there  may  be  an 
actual  average  rate  which  all  individuals  strive  to  attain  ; 
say,  for  example,  ten  per  cent.  As  a  matter  of  fact,  such 
individual  obtains  all  he  can.  He  does  this,  especially  in 
places  of  large  trade,  by  charging  as  much  advance  on  every 
article  as  he  finds  it  will  bear.  If  his  rate  is  too  high,  he 
will  find  his  custom  fall  off;  or,  if  he  has  customers,  they 
will  be  of  a  hazardous  class,  by  whose  delinquencies  he  will 
lose  more  than  he  can  gain  by  their  patronage.  Then, 
again,  it  is  practically  true,  that  scarce  any  two  commodities 
pay  the  same  profit ;  some,  it  may  be,  only  two,  some  ten, 
some  twenty  per  cent.  And,  further,  while  in  the  same 
street  one  man  sells  his  goods  at  ten  per  cent,  another  is 
selling  at  seven  and  a  half  per  cent,  and  is  making  a  larger 
amount  of  net  profits  at  that.     Why  is  this  ? 

First,  The  latter  buys  more  shrewdly.     Secondly,  he  car- 


284  DISTRIBUTION.  [BOOK  IV. 

ries  on  his  business  more  by  his  own  efforts,  and  with  less 
expense ;  and,  lastly,  sells,  as  he  will  be  likely  to  do,  to  re- 
liable men,  who  most  certainly  discover  where  they  can  pur- 
chase to  the  greatest  advantage. 

RAPIDITY   OP  EXCHANGE. 

The  necessary  rate  of  profit  depends  greatly  on  the  rapid- 
ity of  sales,  as  compared  with  the  capital  employed  and  the 
expense  of  conducting  business. 

This  may  be  shown  in  the  following  illustration :  — 

A,  with  a  capital  of  $10,000,  which  he  turns  every  six  months, 
charges  twenty  per  cent  profit. 

B,  with  same  amount,  turns  his  capital  once  in  three  months,  at 
fifteen  per  cent. 

C,  with  same  amount,  turns  his  capital  every  thirty  days,  at 
seven  and  one-half  per  cent. 

Result:  — A  sells  $20,000  at  20  per  cent $4,000 

Interest  on  capital $600 

Rent 600 

Labor  and  other  expenses 800       o  000 

A's  net  profit $2,000 

B  sells  $40,000  at  15  per  cent $6,000 

Interest  on  capital $600 

Rent 600 

Labor,  &c 1,200       ^  ^qq 

B's  net  profit $3,600 

C  sells  $120,000  at  7£  per  cent $9,000 

Interest  on  capital $600 

Rent 600 

Labor,  &c 2,500       3,700 

C's  net  profit $5,300 

Large  sales,  with  small  profits,  or  a  rapid  turning  of  capi- 
tal, is  the  natural  tendency  of  trade,  as  population  and 
wealth  increase,  and  especially  as  credits  are  diminished. 


CHAP.  V.]  PROFITS.  285 

Those  who  sell  for  cash  have  immensely  the  advantage  of 
those  who  give  long  credits,  particularly  under  a  mixed 
currency,  which  so  largely  increases  the  hazards  of  trade. 

In  those  communities  in  which  the  people  are  generally 
poor,  and  their  wants  great  and  pressing,  as  in  newly  settled 
countries,  credits  are  naturally  much  extended,  and,  of 
course,  the  rate  of  profits  proportionally  increased.  This 
is  known  to  be  the  case  over  a  large  part  of  our  "Western 
States.  The  people  can  afford  to  pay  large  profits,  if  by  so 
doing  they  can  get  the  use  of  capital,  because  capital  pro- 
duces so  large  a  return  ;  as,  for  example,  one  thousand  dol- 
lars invested  in  the  spring  in  ploughing  the  prairie,  and 
getting  in  a  crop  of  wheat,  will,  not  unlikely,  give  a  net  profit, 
within  six  months,  of  one  hundred  per  cent.  But  when 
such  communities  accumulate  capital,  and  are  able  to  pay 
as  they  purchase,  they  come  to  buy  at  greatly  reduced  rates, 
and  profits  fall  to  the  minimum.  This  is  the  general  law  in 
all  countries,  though  most  clearly  seen  in  new  settlements. 
The  average  rate  of  profits  in  a  country  is  determined  by 
the  same  law  as  wages.  Profits  are  merely  ivages  received 
by  the  employer.  This  idea  should  be  kept  constantly  in 
mind.  The  wages  of  the  laborer  depend  upon  supply  and 
demand  :  why  not  the  wages  of  those  who  employ  him  ? 
The  employer  is  as  truly  a  laborer  as  the  man  who  toils  with 
the  spade,  only  on  a  higher  plane. 

If  there  are  more  laborers  than  are  wanted,  wages  fall ; 
if  fewer,  they  advance  :  just  so  with  employers,  or  business 
undertakers.  If  there  are  too  many  competing  for  profits, 
the  rate  will  fall  until  the  excess  is  driven  back  into  the 
ranks  of  labor.  As  there  are,  however,  comparatively  few,  in 
proportion  to  the  whole  number  of  persons  capable  of  labor, 
who  have  the  requisite  capacity  and  training  required  for 
transacting  business  successfully,  and  fewer  still  who  can 
command  the  necessary  means  or  capital,  it  will  follow  that 
the  rewards  of  the  employer  will  be  larger  than  those  of  the 
persons  employed.     But  we  must  not  forget  that  this  differ- 


286  DISTRIBUTION.  [BOOK   IV. 

ence  is  less  than  at  first  appears,  because  our  observation 
shows  us,  that,  of  all  who  undertake  to  trade  or  manufacture, 
a  large  majority  become  bankrupts  ;  and,  consequently,  the 
average  difference  between  the  employer  and  the  employed 
is  greatly  reduced. 

There  is,  undoubtedly,  a  constant  tendency  to  an  equali- 
zation and  reduction  of  profits  from  continual  improvements 
in  the  means  of  locomotion,  and  the  increasing  intelligence 
of  the  people.  The  opening  of  railroads  has  wrought  a 
great  revolution  in  this  particular.  These  not  only  greatly 
reduce  the  cost  of  transportation,  but  the  average  rate  of 
profits.  For  example,  a  given  town  is  one  hundred  miles 
from  the  mart  of  trade,  by  which  it  is  supplied.  There  are 
only  common  roads,  and  those  of  bad  construction.  Eight 
or  ten  days  are  required  to  pass  teams  to  and  from  the  city. 
Under  such  circumstances,  the  people  generally  will  be  likely 
to  know  but  little  of  the  market  value  of  commodities.  As 
they  must  very  rarely  visit  the  places  where  merchandise  is 
obtained,  and,  consequently,  are  ignorant  of  the  worth  of 
the  articles  they  are  obliged  to  purchase,  and  quite  unable 
to  supply  themselves  directly,  they  are  charged  large  profits 
on  what  they  buy.  Let  a  railroad  be  put  in  operation,  so 
that  the  time  distance  is  reduced  from  eight  or  ten  days  to 
four  or  five  hours,  the  price  of  all  commodities  in  market 
will  be  known,  and  those  who  supply  them  must  do  so  at 
a  small  advance  ;  while  yet,  it  may  be,  the  dealers  will 
make  as  large  aggregate  profits  from  increased  sales. 

EFFECTS   ON   PROFITS   OF   A   TEMPORARY  RISE   OF   WAGES. 

The  effect  of  a  temporary  rise  of  wages  upon  profits  may 
be  illustrated  as  follows :  — 

A  manufacturer  of  kerseymeres  is  able  to  produce  an  arti- 
cle for  one  dollar  per  yard,  for  which  he  can  get  one  dollar 
and  twenty  cents  in  the  usual  state  of  trade.  A  sudden 
rise  of  wages  advances  the  cost  to  one  dollar  and  ten  cents. 
The  result,  under  ordinary  circumstances,  will  be  that  the 


CHAP.  V.]  PROFITS.  287 

manufacturer  will  not  be  able  to  obtain  at  once  an  advance 
equal  to  the  enhanced  cost.  He  will  be  fortunate  if  he  can 
get  one  dollar  and  twenty-five  cents  for  his  goods,  leaving 
him  but  fifteen  cents  profit.  But,  if  the  rise  in  wages  holds 
on  until  the  market  has  been  cleared  of  the  stock  of  goods 
on  hand,  the  price  will  then  be  easily  brought  up  to  one 
dollar  and  thirty  or  one  dollar  and  thirty-five  cents. 

But  a  rise  of  wages,  especially  if  occasioned  by  an  expan- 
sion of  the  currency,  is  sure  to  be  followed  by  a  correspond- 
ing decline  when  contraction  takes  place.  The  manufac- 
turer will  then  gain  the  advantage  he  lost  by  the  rise  of 
wages.  His  goods  will  not  fall  at  once  as  much  as  the  fall 
in  wages.  This  is  the  practical  experience  of  business  men ; 
and  they  can  safely  calculate  to  gain  as  much  on  the  one 
hand  as  they  lost  on  the  other.  Wages,  we  have  previously 
shown  on  page  258,  fall  faster  than  commodities.  It  is  from 
the  operation  of  this  law  that  the  entrepreneur  gains  in  the 
fall  as  much,  ordinarily,  as  he  lost  in  the  rise  of  wages. 

DIVIDENDS. 

A  large  share  of  the  income  received  by  owners  of  capital, 
at  the  present  day,  comes  in  the  form  of  dividends  on  stock, 
held  in  corporations  and  joint-stock  companies,  formed  for 
almost  every  conceivable  purpose.  The  introduction  of  rail- 
roads has  caused  immense  investments,  the  income  from 
which  is  received  in  dividends.  How  are  these  to  be 
classed  ?  They  cannot  be  regarded  as  synonymous  with  in- 
terest, or  rent :  they  must  be  considered  as  profits.  They 
are  received  for  the  profits  of  business  done  by  proxy.  The 
capitalist  may  not  have  the  slightest  agency  in  the  affairs  of 
the  company  from  which  he  gets  an  income  ;  still  he  is  a 
partner,  though  a  limited  and  silent  one,  and  receives  his 
share  of  the  profits  or  loss. 

It  may  be  objected,  that  bank  dividends  must  surely  be 
classed  with  interest,  since  they  are  made  up  wholly  of  in- 
terest received  for  the  loan  of  capital.     This  is  not  strictly 


288  DISTRIBUTION.  [BOOK   IV. 

correct.  No  inconsiderable  share  of  profit  to  the  banks  of 
the  United  States  is  derived  from  the  premiums  charged  for 
exchange.  American  banks  are  exchange-brokers.  Be- 
sides, nearly  one-half  of  all  the  income  of  mixed-currency 
banks  is  derived  from  the  manufacture  of  currency,  not  the 
loaning  of  money  or  capital.  Although  the  dividends  of 
banks,  of  this  kind,  approach  nearer  to  interest  than  those 
of  ordinary  business  corporations,  still  they  are  most  prop- 
erly classed  with  profits. 

Through  associations,  capital  is  largely  connected  with  the 
industrial  operations  of  the  country,  and  shares  directly  in 
their  prosperity  or  adversity.  This  result  is  in  so  far  a 
favorable  one,  as  it  unites  the  interest  of  capital  with  the 
industry  of  the  country. 


CHAPTER  VI. 

INTEREST. 

What  is  paid  for  the  use  of  money,  or  any  other  form  ol 
loanable  capital,  is  called  "  interest."  Hence  the  term  "  usu- 
ry." It  is  all  the  reward  that  capital  receives,  not  embraced 
in  the  term  "  rent."  It  ordinarily  insures  the  return  made 
for  the  employment  of  money,  because  loans  are  commonly 
made  in  that  form ;  but  the  idea  of  interest  is  general  to  all 
articles  having  value,  but  not  bringing  rent. 

Interest  has  its  justification  in  the  right  of  property.  If 
a  man  can  claim  the  ownership  of  any  kind  of  wealth,  he  is 
the  owner  of  all  it  fairly  produces.  Past  labor  has  all  the 
sacredness  of  present  labor,  and  as  justly  claims  its  reward. 
An  associate  in  production,  it  is  entitled  to  a  share  in  the 
product.  Whoever  by  labor  produces  wealth,  and  by  self- 
denial  preserves  it,  should  be  allowed  all  the  benefit  that 
wealth  can  render  in  future  production.     This  is  the  only 


CHAP.  VI.]  INTEREST.  289 

condition  upon  which  the  largest  accumulation  of  wealth  can 
be  secured ;  it  presents  the  only  motive  that  can  withstand 
the  impulse  to  immediate  gratification.  The  desire  to  gain 
and  the  desire  to  spend  are  both  in  human  nature,  and  are 
conflicting  passions.  What  one  takes,  the  other  must  relin- 
quish. If,  therefore,  the  desire  to  spend  is  unchecked,  all 
wealth  and  physical  well-being  disappear  in  riot  and  waste- 
fulness. There  is  the  further  consideration,  that,  since  to 
loan  capital  is  to  incur  risk,  that  risk  should  be  compen- 
sated. It  has  been  a  favorite  idea  with  many  visionary 
writers,  that  interest  can  be  entirely  done  away  with. 
Proudhon  and  others  have  speculated  and  theorized  much 
on  this  subject ;  but  nothing  can  be  more  idle.  We  can  no 
more  get  rid  of  interest  than  value :  both  are  in  the  laws  of 
nature.  Yet  this  has  been,  in  the  view  of  many,  the  philos- 
opher's stone,  that  was  to  transmute  all  baser  metals  into 
gold.  It  is  akin  to  the  idea  that  credit  can  be  made  to  take 
the  place  of  value,  and  is  sustained  by  the  same  sort  of  rea- 
soning as  that  "  property  is  a  crime ;  a  monopoly  that  must 
be  destroyed." 

We  will  notice  briefly  a  few  of  the  main  principles  that 
govern  the  rate  of  interest  the  world  over. 

1st,  Interest,  in  its  general  rate,  will  be  determined  by 
the  productiveness  of  labor  in  the  community  where  it  is 
employed.  It  is  evident  the  reward  of  capital  cannot  be 
larger  than  the  total  profits  of  business,  because  it  would  no 
longer  be  used  ;  nor  can  it  be  equal  to  these  profits,  for 
no  one  would  be  disposed  to  employ  it  and  pay  out  his  whole 
profits  for  its  use.  Interest  must,  therefore,  be  less  than 
the  aggregate  amount  of  the  returns  of  production  ;  and 
finding,  as  it  does,  a  competitor  in  the  power  of  present 
labor,  capital  will  be  obliged  to  submit  to  an  equitable  di- 
vision. 

If.  then,  the  productiveness  of  labor  is  very  great,  if  the 
industry  of  the  community  yields  easily  and  richly,  capital 
will  naturally  obtain  a  large  reward;  while,  if  Nature  be  nig- 

19 


290  DISTRIBUTION.  [BOOK   TV. 

gardly  in  her  gifts,  each  of  the  parties  must  be  content  with 
a  pittance. 

2d,  Interest  will  be  governed  by  the  law  of  supply  and 
demand  This  is  so  evident  as  not  to  require  argument  or 
proof,  hardly  illustration.  Old  countries  abound  in  accu- 
mulations of  capital.  Interest  is  there  found  cheap.  In  all 
new  countries,  there  is  a  youthfulness  of  capital ;  there  has 
not  been  time  to  develop  the  powers  of  production ;  and  hence 
interest  is  high.  The  United  States  of  America  afford  a 
most  striking  example  in  point.  There  is  a  vast  amount  of 
uncultivated  but  fertile  land,  while  the  amount  of  capital 
with  which  to  cultivate  it  is  comparatively  small.  So  of  its 
manufacturing  capacities.  Hence  there  is  a  high  general 
rate  of  interest.  This  is  governed  by  the  supply  and  demand, 
i.e.  by  the  laws  of  value  alone,  and  should  never  be  inter- 
fered with  by  legal  enactments. 

This  is  a  lesson  mankind  have  been  slow  to  learn ;  yet  the 
most  commercial  nation  in  the  world  (Great  Britain)  has 
abolished  all  usury  laws.  The  experiment  was  at  first  made 
with  great  caution,  limiting  the  exemption  to  a  particular 
kind  of  paper,  and  the  time  in  which  it  should  operate  to  a 
few  months  ;  but  it  was  found  so  perfectly  satisfactory  to 
the  community,  that,  after  a  fair  trial,  the  abolition  of  the 
usury  laws  was  made  final  and  complete. 

But,  upon  a  question  so  much  in  dispute,  it  may  be  desira- 
ble to  give  the  principal  reasons  why  the  matter  of  interest 
should  not  be  interfered  with  by  law. 

(a)  When  it  is  made  a  penal  offence  to  take  over  a  cer- 
tain per  cent  interest  (say  six),  if  money  is  worth  more,  as 
it  often  will  be,  it  must  be  obtained  by  some  indirect  pro- 
cess. Most  persons  do  not  like  to  directly  violate  a  law, 
however  foolish  or  unjust  they  may  deem  it  to  be;  conse- 
quently, they  will  attempt  to  evade  it.  There  is  no  difficulty 
in  this.  A  note  may  be  sold  to  a  broker  for  what  it  will 
bring ;  and  the  broker  buys  it  with  funds  furnished  by  the 
capitalist,  who  stands  behind  the  curtain  while  the  borrower 


CHAP.  VI.]  INTEREST.  291 

pays  the  broker  for  getting  the  money  he  might  otherwise 
have  obtained  directly  of  the  capitalist  himself.  The  law 
has  not  prevented  the  usury,  only  increased  the  rate.  The 
broker  feels  no  responsibility ;  for  he  is  only  an  agent  be- 
tween the  parties.  The  capitalist  has  no  scruples  ;  for  he  is 
not  known  in  the  transaction.  Instead  of  this,  the  borrower 
and  lender  should  be  brought  face  to  face,  in  an  open  mar- 
ket, where  each  could  be  protected  by  law  in  the  transac- 
tion ;  and  then  a  fair,  unrestricted  competition  would  assure 
the  lowest  rate  of  interest,  obtained  most  economically. 

But  for  usury  laws,  the  current  rate  of  interest  would  be 
as  well  known  as  the  price  of  stocks  or  corn  or  wool,  and 
would,  like  them,  be  determined  by  the  laws  of  trade  ;  and 
men  would  act  as  intelligently  and  as  freely  as  in  the  pur- 
chase of  merchandise.  Freedom  is  as  essential  in  the 
disposal  of  money  as  in  the  intercourse  of  nations.  To 
hamper  it  with  laws  regulating  the  rate  at  which  it  shall  be 
loaned,  is  as  absurd,  and  as  repugnant  to  the  laws  of  wealth, 
as  to  fix  the  price  of  wheat  or  cotton. 

(6)  Usury  laws  create  an  injurious  distinction  between 
different  kinds  of  mercantile  paper,  and  thus  occasion  em- 
barrassment and  loss  to  borrowers. 

For  example,  the  law  says  in  Massachusetts  that  only  six 
per  cent  interest  shall  be  taken  by  the  banks.*  But  money 
may  be  worth  twelve  per  cent ;  and  there  are  ten  applica- 
tions for  it,  at  that  rate,  to  one  that  can  be  supplied.  What 
is  the  result  ?  Why,  the  bank  will  make  no  loans  except 
upon  such  paper  as  it  can  charge  for  exchange.  Exchange 
is  legal,  whether  it  is  real  or  fictitious.  A  and  B  apply  for 
discount  at  a  bank  in  Boston.  A  offers  notes  of  the  most 
undoubted  character,  payable  in  Boston ;  B  offers  notes  or 
drafts  payable  in  New  York,  and  he  gets  accommodated. 
His  drafts  have  sixty  days  to  run ;  he  is  charged  one  per 
cent  exchange,  and  thus  pays  twelve  per  cent  interest.  A, 
having  only  notes  on  which  no  such  exchange  can  be  legally 

*  This  law  was  abolished  in  1867. 


292  DISTRIBUTION.  [BOOK   IV. 

charged,  must  "  go  into  the  street,"  and  employ  a  broker  to 
sell  the  notes  for  him  at  the  best  rates  he  can. 

This  state  of  things  occasions  great  annoyance  and  loss 
to  borrowers ;  yet  it  must  continue  so  long  as  usury  laws 
exist. 

(c)  Usury  laws  are  the  principal  cause  of  compulsory 
deposits,  or  deposits  made  to  secure  large  discounts.  These 
are,  as  we  have  shown,  exceedingly  burdensome  to  the  busi- 
ness community,  and  most  dangerous  to  the  currency.  If 
the  rate  of  interest,  as  at  the  Bank  of  England,  was  left 
entirely  to  the  state  of  the  money  market,  these  deposits, 
now  peculiar  to  American  banking,  would  disappear.  If 
every  man  could  borrow  money  at  what  it  was  worth,  there 
would  be  no  motive  to  bribe  moneyed  institutions  indirectly. 

3d,  Interest  will  be  influenced  largely  by  the  safety  or 
hazard  of  capital.     This  will  depend, — 

(a)  Upon  the  moral  character  of  the  people,  whether 
essentially  honest  or  dishonest,  whether  honorable  or  dis- 
honorable, whether  industrious,  frugal,  and  temperate,  or 
otherwise. 

(b)  Upon  the  general  thrift  of  the  community ;  for  how- 
ever well  disposed  to  pay,  if  decay  and  decline  are  general, 
the  hazards  of  capital  must  be  greatly  increased.  It  must 
share  in  the  general  losses  of  business. 

(c)  Upon  the  justice  and  efficiency  of  the  laws  by  which 
the  rights  of  property  are  secured,  and  the  obligation  of 
contracts  enforced.  This,  as  can  readily  be  seen,  is  one  of 
the  most  important  considerations  in  regard  to  the  safety 
of  loans ;  and,  of  course,  the  rate  of  compensation  in  the 
shape  of  interest. 

4th,  Again,  the  uniformity  of  the  rate  of  interest,  and  its 
general  average,  will  depend  mainly  upon  the  soundness  of 
the  currency.  If  it  consists  wholly  of  value,  —  that  is,  if  the 
credit  element  constitutes  no  part  of  the  circulating  medi- 
um or  standard  of  value,  —  the  rate  of  interest  will  be  as  uni- 
form and  as  low  as  the  laws  of  trade  admit.     The  rate  can 


CHAP.  VI.]  INTEREST.  293 

never  be  absolutely  fixed  at  one  point ;  yet,  where  no  credit 
is  used  as  currency,  the  credits  of  the  country  will  be  so 
based  upon  values  that  the  vacillations  will  be  very  mode- 
rate. They  were  very  slight  in  Europe  until  within  the 
last  thirty  years. 

We  have  already  shown,  when  speaking  of  a  mixed  cur- 
rency,* how  frequent  and  excessive  are  the  fluctuations  in 
the  rate  of  interest  in  the  United  States.  In  no  other  civil- 
ized country  have  they  been  so  great,  for  the  sufficient  rea- 
son that  no  other  country  has  a  mixed  currency  so  deficient 
in  the  element  of  value. 

We  have  shown,  at  the  place  referred  to,  that  these  varia- 
tions have  been  from  three  and  one-half  to  thirty-six  per 
cent.  Now,  no  commodity,  in  time  of  peace,  has  varied  to 
an  equal  extent.  The  reason  is,  that  commodities  are  not 
wanted  to  pay  notes ;  but,  to  meet  pecuniary  engagements, 
money  is,  and  must  be  had. 

Under  a  currency  in  which  credit  is  the  principal  element, 
the  fluctuations  in  interest  are  in  proportion  to  the  extent 
of  that  element ;  because,  as  we  have  shown,  a  mixed  cur- 
rency, whenever  there  is  any  panic  or  distress  for  money, 
withdraws  from  circulation  with  a  rapidity  proportionate  to 
its  weakness,  or  want  of  value.  Hence  the  frightful  revul- 
sions we  have  witnessed.  And  we  may  doubtless  expect 
that  these  will  increase  in  force  and  frequency  in  the  future, 
since  the  mixed-currency  system,  once  almost  exclusively 
confined  to  England,  France,  and  the  United  States,  is  being 
extended  throughout  the  commercial  world.  The  risks  of 
credit  will  therefore  be  greater,  and  the  average  rate  of  inter- 
est will,  so  far  as  risk  is  concerned,  be  enhanced. 

But,  in  regard  to  a  legal  rate  of  interest,  it  may  be  asked, 
whether  a  limit  should  not  be  established  by  law,  in  all  cases 
where  the  parties  have  not  themselves  agreed  upon  one. 
Certainly,  it  would  seem  desirable  and  proper,  that,  in  the 
absence  of  all  agreement  or  contract,  the  law  should  say 

*  See  Diagram  No.  6,  p.  197 


294  DISTRIBUTION.  [BOOK  IV. 

that  a  given  rate  should  be  awarded.  This  would  not  he 
regulating  the  rate  of  interest,  but  establishing  justice  be- 
tween the  different  parties  in  those  cases  where,  from  any 
cause,  no  fixed  rate  of  interest  had  been  agreed  upon.  This 
legal  rate  would  properly  be  the  general  average  rate  ob- 
tained for  the  use  of  money. 


CHAPTER  VII. 

RENT. 

Rent  is  paid  for  the  use  of  land  and  its  appendages, 
which  together  are  called  "  real  estate."  The  question  of 
the  rent  of  land  is  of  much  less  practical  importance  in  the 
United  States  than  in  Europe,  since  it  is  here  generally  held 
in  fee  simple  by  those  who  cultivate  it.  Yet,  as  an  economic 
question,  it  deserves  consideration.  And  there  is  an  espe- 
cial inducement,  since  we  certainly  have  in  this  country  the 
best  opportunity  to  investigate,  in  their  simple  primitive  form, 
all  the  phenomena  connected  with  it.  Constantly  entering 
upon  new  lands,  we  have  exhibited  for  our  observation  the 
working-out  of  problems  which  long  puzzled  the  philosophers 
of  the  old  world. 

1st,  Rent  implies  ownership,  since  no  one  would  pay  for 
the  use  of  that  to  which  all  had  an  equal  title.  This  may 
be  called  the  first  condition. 

2d,  It  implies  society,  so  that  more  than  one  person  shall 
desire  the  use  of  the  same  land  or  appendages.  If  exchange, 
as  M.  Bastiat  says,  "  is  civilization,"  rent  is  society.  This 
is  the  second  condition. 

From  our  definition,  it  will  appear  that  rent  is  paid  (a)  for 
land,  (6)  for  whatever  is  added  to  its  value  or  desirableness. 
We  cannot  separate  the  two  considerations,  nor  would  it 
be  of  practical  utility  if  we  could  ;  as,  from  what  we  have 


CHAP.  VII.]  RENT.  295 

already  endeavored  to  show,  value  is  not  derived  from  the 
gifts  of  nature,  but  the  labor  of  man :  "  land,  water,  steam, 
electricity,  and  the  like,  confer  no  value." 

Land  may  be  said  to  be  the  foundation  of  rent ;  and,  since 
the  rightfulness  of  appropriating  it  has  been  disputed,  it  may 
be  proper  to  remark  that  we  deem  it  a  sufficient  answer,  that 
appropriation  is  indispensable  to  the  production  and  accu- 
mulation of  wealth,  to  the  progress  of  civilization,  and  the 
welfare  of  the  human  race :  therefore  it  is  right. 

Man,  in  his  original  or  savage  state,  is  a  hunter.  He 
needs  no  appropriation  of  land  ;  for  he  roams  at  large  through 
the  forest.  He  accumulates  little  or  nothing ;  and  it  is  of 
small  importance  where  he  builds  his  temporary  cabin.  His 
means  of  living  are  precarious ;  he  is  often  exposed  to  star- 
vation, has  nothing  permanent,  pays  no  rent,  and  population 
but  slowly  increases. 

Nor  in  the  second  or  nomadic  condition,  when  man  be- 
comes a  shepherd,  does  rent  make  its  appearance.  His  busi- 
ness is  no  longer  mere  destruction,  but  preservation  and 
use.  This  elevates  his  condition ;  the  employment  has  a 
far  more  ennobling  effect  upon  character ;  higher  faculties 
and  better  feelings  are  developed.  But  still  he  lives  in  a 
tent,  and  removes  from  place  to  place  to  find  pasturage  for 
his  flocks.  In  the  natural  progress  of  events,  he  becomes  an 
agriculturist.  His  chief  business  now  is  to  till  the  ground. 
How  can  he  do  this  without  preparation  of  the  soil  from 
which  he  is  to  draw  his  sustenance  ?  And  why  should  he 
do  this,  if  another  may  at  will  dispossess  him  of  his  labors  ? 
The  land  must  be  divided,  appropriated,  and  held  by  some 
tenure  that  can  be  relied  upon ;  and,  when  this  takes  place, 
rent  makes  its  appearance,  and  increases  in  intensity  as  man 
becomes  more  and  more  advanced  in  social  condition ;  for 
with  agriculture  come  the  mechanic  arts,  manufactures, 
commerce,  villages,  towns,  cities,  —  civilization. 

We  now  come  to  the  elements  which  enter  into  the  rental 
of  land. 


296 


DISTRIBUTION. 


[book  rv. 


THE   FIRST    ELEMENT   OP   RENT. 

Location.  —  This  grows  out  of  the  social  condition  of  man, 
to  which  wc  have  alluded.  If  men  lived  as  isolate  beings, 
and  there  were  land  enough  for  all,  and  the  whole  equally 
fertile,  there  would  be  no  rent ;  but,  once  gathered  into  vil- 
lages and  communities,  rent  would  make  its  appearance, 
although  there  were  as  much  land  as  all  desired,  and  each  part 
equally  productive. 

This  point  we  shall  endeavor  to  make  plain  by  an  illus- 
tration.* A  colony  of  thirteen  families  settles  along  the 
shore,  where  all  the  land  is  unclaimed,  and  immigrants  have 
only  to  choose  where  and  how  much  they  will  occupy.  We 
will  suppose  the  land  all  equally  fertile,  agreeable,  and  ac- 
cessible. In  point  of  fact,  there  shall  be  no  natural  differ- 
ence between  one  lot  of  one  hundred  and  sixty  acres  (what 
each  family  desires)  and  another ;  absolutely  no  choice  aris- 
ing from  any  thing  appertaining  to  the  land.  They  accord- 
ingly lay  out  thirteen  lots  half  a  mile  square.  This  allot>- 
ment  and  location  upon  the  shore  we  represent  as  follows :  — 


'     2 

1 

3 

4 

5          6 

i 

7* 

8 

9 

10    1    11 

12 

13 


Iii  this  arrangement,  it  will  be  seen,  the  lots  commencing 
on  the  left  are  numbered  1  to  13.  No.  7  is,  of  course, 
the  middle  lot. 

Now,  all  being  equally  eligible,  the  land  equally  accessi- 
ble and  good,  and  there  being  as  many  lots  as  settlers,  and 
each  as  large  as  any  one  desires,  will  there  be  any  value 
to  them?  Yes:  because  all  will  prefer  No.  7,  for  they 
perceive  that  it  is  most  desirable,  inasmuch  as  it  is  cen- 
tral ;  and,  if  public  buildings  are  erected  for  the  accom- 
modation of  all  (schoolhouse,  church,  &c),  they  must  be 

*  This  illustration  was  given  by  the  author  in  the  "Merchant's  Maga- 
zine," in  I860,  vol.  xlii.  p.  306. 


CHAP.  VII.]  RENT.  297 

placed  on  that  lot.  If  a  landing-place  is  made,  or  a  ware- 
house put  up,  for  the  commerce  of  the  settlement,  it  must 
be  on  No.  7  ;  for  the  obvious  reason  that  it  is  the  point  at 
which  the  whole  population  can  most  readily  assemble,  and 
it  thus  forms  the  natural  centre  of  business. 

All  this  is  so  apparent,  that  each  man  prefers  No.  7 ; 
but  only  one  can  have  it.  What  follows  ?  It  must  be 
sold  to  the  man  who  will  give  the  most  for  it.  Some  one 
will  give  one  hundred  bushels  of  wheat,  or  its  equivalent,  — 
six  bushels  rent  per  annum.  All  this  does  actually  happen 
in  every  case  of  new  settlement ;  not,  indeed,  in  a  manner 
always  so  distinct  and  striking  as  in  the  case  we  have  sup- 
posed, but  in  principle  as  certain  and  absolute. 

If  this  is  so,  we  have  established  the  fact,  that,  though  all 
land  were  equally  fertile,  and  there  were  enough  for  all,  and 
all  equally  desirable  in  every  other  particular,  yet  that  rent 
would  arise  from  the  social  wants  of  man,  which  make  mere 
location  a  circumstance  affecting  its  value,  and  create  a 
rental  independent  of  all  other  considerations. 

THE   SECOND   ELEMENT   OP  RENT. 

Difference  of  Fertility.  —  We  will  suppose  four  different 
tiers  of  land,  of  unequal  fertility.  The  first  will  yield  forty 
bushels  of  corn  ;  the  second,  with  the  same  labor,  thirty ; 
the  third,  twenty ;  the  fourth,  ten. 

Now,  while  there  was  enough  land  of  the  first  to  produce 
all  the  corn  wanted,  nobody  would  give  any  rent  for  the  first 
tier  on  account  of  its  fertility  ;  but  when,  by  the  increase  of 
population,  it  became  necessary  to  cultivate  No.  2,  which 
would  only  yield  thirty,  No.  1  would  command  a  rental  of 
ten  bushels,  because  a  man  might  as  well  give  ten  bushels 
rent  for  No.  1  as  to  cultivate  No.  2  without  rent. 

When,  again,  necessity  compelled  the  cultivation  of  No. 
3,  No.  2  would  pay  a  rent  of  ten  bushels,  and  No.  1  of 
twenty  bushels.     And  further,  when  tier  No.  4  must  be 


298  DISTRIBUTION.  [BOOK  IV. 

brought  under  culture  to  produce  the  quantity  of  corn 
needed  for  consumption,  then,  as  it  would  with  equal  labor 
produce  but  ten  bushels,  No.  1  would  yield  a  rent  of  thirty, 
No.  2  of  twenty,  and  No.  3  of  ten ;  while  the  last,  or  No.  4, 
would  afford  no  rent.* 

THE  THIRD  ELEMENT  OF  RENT. 

We  will  further  suppose,  that,  from  the  increase  of  popu- 
lation, more  corn  is  wanted  than  can  be  raised ;  and,  con- 
sequently, importations  are  made  at  an  increased  price,  — 
equal,  say,  to  fifty  per  cent.  Now  if,  for  the  sake  of  con- 
venience, we  take  the  price  of  corn  to  have  been  originally 
one  dollar  a  bushel,  and  to  have  advanced  to  one  dollar  and 
fifty  cents,  it  will  come  to  pass  that  tier  or  quality  No.  1 
will  have  a  rent  of  $45 ;  No.  2,  of  $30  ;  No.  3,  of  $20  ;  and 
No.  4,  which  now  for  the  first  time  produces  rent,  of  $5. 

This  represents  the  condition  of  Great  Britain,  which, 
besides  raising  all  the  wheat  her  highly  cultivated  fields  can 
profitably  produce,  imports  some  eighty  millions  of  bushels 
annually.  This  causes  a  large  increase  of  prices  ;  conse- 
quently, of  money  rent. 

FOURTH  ELEMENT  OF  RENT. 

Application  of  Capital  to  Land.  —  This  is  done  in  various 
ways,  —  by  the  use  of  fertilizing  materials,  drainage,  deep 
ploughing,  &c.  For  every  such  appliance,  wisely  made,  a 
rent  is  received,  supposed  to  be  equivalent  to  the  expendi- 
ture incurred. 

And  here  it  may  be  found  that  the  same  expenditure, 
applied  to  the  different  qualities  of  land,  produces  unequal 
results.  Five  dollars,  expended  per  annum  on  No.  1,  may 
return  but  a  profit  or  additional  rent  of  eight  dollars ;  while 

*  Mr.  Ricardo,  we  believe,  first  brought  out  tlus  principle  clearly  in  his 
"  Political  Economy,"  London,  1819. 


CHAP.  VII.]  RENT.  299 

the  same  amount,  applied  to  No.  2,  will  give  seven  dollars ; 
or  to  No.  3,  will  give  six  dollars,  &c. 

This  will  cause  a  variation  in  the  relative  rentals  of  the 
different  qualities  or  tiers  of  land  we  have  supposed. 

Improvements,  more  or  less  permanent,  are  investments 
of  capital  in  real  estate,  changing  the  income  from  the  form 
of  interest  to  that  of  rent.  They  are  made  to  an  immense 
extent  in  the  older  countries  of  Europe.  Their  profitable- 
ness depends,  like  that  of  all  other  investments,  upon  the 
wisdom  with  which  they  are  made :  but  men  are  more  dis- 
posed to  invest  capital  in  real  estate,  other  things  equal, 
than  in  any  thing  else,  for  the  reasons  that  it  has  the  great- 
est security ;  that  it  gives  a  certain  degree  of  social  impor- 
tance to  the  holders  in  all  countries,  and,  in  some,  confers 
political  rights  and  privileges. 

LAND  APPENDAGES. 

We  have,  thus  far,  noticed  only  the  rent  of  land,  without 
reference  to  what  may  be  placed  upon  it  for  other  purposes 
than  direct  production. 

"We  now  come  to  speak  of  real  estate,  consisting  of  dwell- 
ings, stores,  warehouses,  and  the  like. 

When  buildings  are  placed  upon  farms,  they  form  a  part 
of  the  preparations  which  are  indispensable  to  agriculture ; 
and,  if  erected  with  suitable  reference  to  economy,  will  add 
to  the  value  of  land  as  much  as  shall  be  equal  to  their  fair 
annual  rent.  Farming  cannot  be  carried  on  without  build- 
ings ;  therefore,  so  far  as  buildings  are  absolutely  neces- 
sary, they  will  command  a  rent  as  certainly  as  the  land 
itself.  This  must  be  true  ;  and  yet  all  know  that  "  improve- 
ments," as  they  are  called,  in  the  shape  of  buildings,  seldom 
increase  the  value  of  farms  in  proportion  to  their  cost.  For 
example,  if  the  land  alone  is  worth  three  thousand  dollars, 
and  buildings  are  put  up  costing  two  thousand  dollars, 
the  whole  will  not,  ordinarily,  sell  for  five  thousand  dol- 


300  DISTRIBUTION.  [BOOK   IV. 

lars.  Facts  of  this  sort  are  observed  everywhere.  Farms 
may,  as  a  general  rule,  be  bought,  especially  in  all  the  older 
States,  at  much  less  than  their  cost,  after  making  all  due 
allowances  for  depreciation  of  buildings,  &c.  We  observe, 
first,  that  buildings  are  not  generally  put  upon  farms  for  the 
purpose  of  selling  or  letting  them.  They  are  almost  inva- 
riably erected  by  the  owners  of  the  land,  in  order  to  create 
for  themselves  a  home.  To  make  that  home  pleasant  and 
desirable,  a  dwelling  is  erected  according  to  the  tastes  of 
tin1  owner  and  his  family,  rather  than  the  direct  profit  of  the 
farm.  There  is  a  natural  and  becoming  competition  among 
agriculturists  to  have  pleasant,  and,  as  far  as  may  be,  elegant 
residences.  Hence,  they  build  upon  a  more  expensive  scale 
than  the  business  of  agriculture  will  fully  justify  ;  and  though 
they  may  be  able  to  keep  on,  and  even  thrive,  with  their 
establishments,  these  are,  nevertheless,  a  heavy  charge  upon 
their  industry.  Whenever,  therefore,  such  farming  proper- 
ties must  be  sold,  the  purchaser  will  rarely,  if  ever,  give 
more  than  a  fraction  of  the  original  cost  of  the  buildings. 
If,  as  is  generally  the  case,  he  must  make  the  money  off  his 
land  to  pay  for  the  estate,  he  cannot  afford  the  cost  of  build- 
ings erected  to  gratify  the  taste  of  somebody  else.  He  gets 
the  extra  improvements  gratis,  really  paying  only  for  the 
useful  and  necessary. 

And,  in  the  competition  of  cultivation  in  a  community 
like  the  United  States,  it  is  to  be  remembered  that  its  agri- 
culture is  a  unit ;  that  the  products  of  the  accessible  and 
fertile  prairies  of  the  West  are  brought  into  the  same  mar- 
kets as  those  of  the  hard  and  sterile  hills  of  New*England. 
And  it  is  also  to  be  taken  into  account,  that  a  farm  in  Illi- 
nois, for  example,  with  a  productive  power  of  five  thousand 
bushels  of  corn,  will  probably  not  have  upon  it  buildings 
worth  more  than  one  thousand  dollars  ;  while  on  many 
Eastern  farms,  of  a  productive  power  of  but  two  thousand 
bushels,  the  buildings  may  have  cost  three  thousand  dollars. 
Now,  as  these  farms  are,  in  fact,  competing  in  the  same  gen- 


CHAP.  VII.]  RENT.  301 

eral  markets,  it  is  clear  that  the  extra  expenditures  upon 
Eastern  farms  can  pay  but  little,  if  any,  rental,  though  they 
may  be  very  pleasant  to  the  occupant. 

It  is  on  the  same  principle  that  the  amount  expended  in 
clearings,  building  walls  around  farms,  and  the  like,  do  not, 
in  the  aggregate,  return  much  rent  or  income,  compared 
with  their  cost.  They  become,  in  the  progress  of  years,  to 
a  considerable  extent,  like  the  gifts  of  nature,  gratuitous. 
This  is  true  of  all  countries,  at  all  times. 

In  cities,  where  the  value  of  real  estate  consists  princi- 
pally of  buildings,  and  improvements  made  upon  the  land, 
we  find  that  the  land  itself  feels  the  operation  of  the  first 
cause  of  rent  or  value,  viz.  location,  far  more  intensely 
than  anywhere  else.  An  acre  of  land,  once  of  the  value  of 
fifty  dollars  for  agriculture,  becomes  worth  five  hundred 
thousand  dollars  for  city  purposes.  Such,  and  even  more 
extraordinary,  instances  may  be  found,  showing  to  what  ex- 
tent the  principle  of  location  may  be  carried.  The  estimated 
wealth  of  cities  consists,  to  a  considerable  extent,  of  the 
appreciation  in  the  value  of  land  which  the  increasing  den- 
sity of  population  and  the  concentration  of  business  enter- 
prise has  occasioned. 

Investments  in  commercial  cities  depend,  of  course,  for 
success,  upon  commercial  prosperity.  Changes  likewise 
take  place  in  the  business  centres  of  every  great  city. 
There  is  much  of  mere  whim  and  fashion  in  this  ;  but, 
whether  the  commerce  and  trade  of  the  city  moves  "  up 
town  "  or  "  down  town,"  rents  move  with  it. 

City  property,  in  all  thrifty  communities,  is  sure,  on  the 
whole,  to  advance  in  value  with  the  lapse  of  time  ;  and  hence 
it  is  always  a  favorite  investment.  Yet  so  great  is  the  com- 
petition, so  large  the  amount  of  capital  in  cities,  that  the  net 
average  rental  is  probably  not  greater  than  the  ordinary  rate 
of  interest.  Rents  are  based  on  permanent  property  that 
requires  much  care  ;  interest,  upon  securities  that  may  prove 
worthless,  but  which  demand  but  little  attention. 


802  DISTRIBUTION.  [BOOK  IV.. 

The  absence  of  all  restrictions  upon  the  ownership  and 
transfer  of  landed  property  and  real  estate,  of  all  entails  and 
mortmain  holdings,  makes  the  question  of  rent  one  of  small 
practical  importance.  Where  owning  is  the  rule,  and  hiring 
the  exception,  as  is  the  case  with  us,  rents  regulate  them- 
selves ;  or,  in  other  words,  are  governed  entirely  by  the 
operation  of  the  laws  of  value.  They  advance  or  recede 
with  trade  and  population. 


CHAPTER  VIII. 

WAGES,  RENT,  INTEREST,  AND  PROFITS,  AS  RELATIVELY  AFFECT- 
ED  BY   CURRENCY   INFLATION. 

It  is  an  important  fact,  not  to  be  overlooked  in  our  exami- 
nation of  incomes  derived  from  wages,  rent,  interest,  and 
profits,  that  all  of  these  are  not  only  greatly  affected  by  the 
condition  and  character  of  the  existing  currency,  but  also  in 
very  unequal  degrees.  We  have  already  spoken  of  the  in- 
fluence of  an  inflated  currency  upon  wages  and  interest ;  but 
we  are  now  to  show  its  unequal  operation  upon  all  these 
different  kinds  of  revenue. 

The  enormous  inflation  of  currency  during  the  rebellion 
has  given  a  most  favorable,  because  a  most  striking,  illustra- 
tration  of  the  degree  in  which  different  interests  may  be 
affected  by  any  inflation. 

Take,  for  example,  the  years  1864  and  1865.  Wages 
were,  on  an  average,  fifty  per  cent  above  their  usual  rate. 
Where  a  skilful  workman  had  previously  obtained  two 
dollars  a  day,  he  now  got  three :  where  the  common  laborer 
got  one  dollar,  he  now  got  one  dollar  and  a  half.  From 
extensive  inquiry  and  personal  observation,  we  are  satisfied 
that  the  rise  of  wages,  take  the  country  through,  was  equal 
to  fifty  per  cent :  such  we  have  found  the  uniform  testimony 
of  employers. 


CHAP.  VIII.]  WAGES,   RENT,   ETC.  303 

Rents,  during  the  civil  war,  except  in  some  large  cities, 
advanced  but  little,  on  an  average,  throughout  the  country: 
it  is  much  to  be  doubted  if  they  advanced  more  than  ten, 
certainly  not  more  than  twenty,  per  cent. 

The  rate  of  interest  advanced  generally  from  6  per  cent 
to  7.30 ;  but  this  was  mainly  from  the  action  of  the  govern- 
ment, which  negotiated  large  loans  at  that  rate,  and  con- 
sequently fixed  that  as  a  general  standard.  Yet,  of  the 
immense  amount  loaned  on  mortgage,  it  is  doubtful  if  a 
tenth  part  of  it  has  been  raised  beyond  what  it  was  pre- 
vious to  the  war.  But  we  may  safely  assume  that  the  rise 
of  interest  has  been  from  6  to  7.30  per  cent,  or  about  twenty 
per  cent. 

Profits  may  be  safely  estimated,  during  1865,  at  a  hun- 
dred per  cent  higher  than  ordinary ;  that  is,  where  they 
were  ten  per  cent  on  the  business  transacted,  they  were  in- 
creased to  twenty  per  cent.  This  we  suppose  a  very  low 
estimate.     To  recapitulate  :  — 

Interest  and  rent,  the  remuneration  of  the  capitalist, 

advanced 20  per  cent. 

Wages,  the  remuneration  of  the  laborer,  advanced  .       50  per  cent. 

Profits,  the  remuneration  of  the  business  man,  ad- 
vanced      100  per  cent. 

What  is  the  result  of  this  ?  Who  wins,  in  consequence  of 
this  rise  of  wages,  interest,  rents,  and  profits,  occasioned  by 
the  inflation  of  the  currency  ?  Prices  rise,  as  we  have  seen, 
to  an  unprecedented  height ;  say,  one  hundred  and  twenty 
per  cent.     Then  we  will  suppose  that  — 

A,  the  capitalist,  has  an  income  from  interest  and  rent  .  $4,000 
Gains  twenty  per  cent  by  rise  of  rate 800 

Whole  income  in  currency $4,800 

If  he  expends  this  amount  in  general  commodities,  at  the 
advanced  prices  we  have  stated  (one  hundred  and  twenty 
per  cent),  he  can  only  purchase  with  his  $4,800  the  samo 


304  DISTRIBUTION.  [BOOK   IV. 

commodities  he  could  have  obtained  before  the  general  rise 
for  $2,181.81. 

From  original  income $4,000.00 

Deduct 2,181.81 

Loss  by  change  of  prices $1,818.19 

equal  to  a  loss  of  45.4  per  cent,  notwithstanding  the  nomi- 
nal rise  of  twenty  per  cent  in  his  income. 

And  now  as  to  the  laborer.  His  wages  were  three  hun- 
dred dollars  :  they  are  now  four  hundred  and  fifty  dollars. 
This  last  sum  is  laid  out  in  commodities,  and  brings  him 
$204.54  worth,  as  reckoned  at  the  prices  before  the  rise. 
So,  from  $300  deduct  $204.54,  and  his  loss  (in  commodities) 
is  found  to  be  $95.46,  or  nearly  one-third  (31.82  per  cent) 
of  his  sound-currency  wages,  or  what  they  were  before  the 
expansion. 

But  how  with  regard  to  the  third  party,  V entrepreneur, — 
the  merchant,  manufacturer,  &c.  His  income,  at  first,  was 
$10,000  :  it  is  now  $20,000.  If  laid  out  in  commodities, 
the  $20,000  would  purchase,  at  the  advanced  prices,  but 
$9,090.90  worth  ;  which  sum  deducted  from  $10,000,  his 
original  profits,  will  give  a  loss  of  $919.10. 

It  is  not  to  be  presumed,  however,  that  the  whole  of  the 
income  of  the  business  man  is  expended  in  commodities, 
but  a  large  share  added  to  the  capital.  Suppose,  before  the 
rise  of  profits  and  prices,  his  expenses  were  five  thousand 
dollars,  and  he  purchases  the  same  commodities  now.  He 
will  then  expend  eleven  thousand  dollars,  leaving  him  nine 
thousand  dollars  to  add  to  his  capital ;  while,  before  the 
general  rise,  he  added  only  five  thousand  dollars.  So  that 
he  is  making  a  net  gain  of  eighty  per  cent  upon  his  income. 

Recapitulation,  on  the  foregoing  suppositions :  — 

The  capitalist  makes  a  loss  of 45.4  per  cent. 

The  laborer  makes  a  loss  of 31.8  per  cent 

The  business  man  makes  a  gain  of 80     per  cent. 


CHAP.  VIII.]  WAGES,   RENT,   ETC.  305 

Or,  to  state  the  result  in  another  form :  — 

The  capitalist  gets  but  54.4  on  the  dollar  of  his  just  due. 

The  laborer  gets  but  68.2  on  the  dollar  of  his  wages. 

The  business  man  gets  180  cents  where  before  he  got  $1.00. 

This  statement,  which  we  think  will  be  found  correct  in 
principle,  and  approximately  so  in  the  application  we  have 
given  it,  shows  the  position  of  each  party  in  reference  to  the 
change  in  the  standard  of  value  occasioned  by  the  war  ex- 
pansion of  the  currency.  The  two  first  classes  lose,  —  the 
capitalist  most  heavily,  but  the  laborer,  perhaps,  most  dis- 
tressingly ;  because,  as  a  general  fact,  the  latter  must  ex- 
pend all  his  income,  and,  under  such  circumstances,  can 
get  only  about  two-thirds  of  the  commodities  to  eat,  drink, 
and  wear  which  he  could  obtain  with  his  wages  under  a 
sound  currency.  But  one  of  the  classes  mentioned  is  get- 
ting rich  ;  viz.,  that  engaged  in  trade,  manufactures,  and 
general  business.  Nor  will  this  class,  perhaps,  in  the  end, 
be  so  greatly  benefited  as  might  be  at  first  supposed ;  for 
it  must  sustain  the  entire  loss  which  will  take  place  upon 
all  the  merchandise  of  the  country,  as  the  currency  comes 
down  to  a  specie  standard.  One  class  we  have  omitted  ; 
viz.,  speculators.  To  them,  an  expansion  like  that  we  have 
experienced  affords  a  golden  and  most  plentiful  harvest ;  and 
they  are  not  slow  to  enter  the  field  of  labor  and  fruition. 
To  them  an  expansion  is  always  a  good ;  for  it  necessarily 
causes  a  rise  of  prices,  and  of  course  an  opportunity  for 
speculative  operations.  Expansion  warms  them  into  life 
and  activity  :  contraction,  to  a  sound  standard  of  value,  sus- 
pends their  animation. 

Upon  certain  facts,  in  regard  to  this  matter,  all  will  doubts 
less  be  agreed :  — 

(a)  That  those  who  live  on  fixed  incomes  from  rent,  in- 
terest, or  salary,  were  never  so  straitened  as  during  the 
war  inflation. 

20 


306  DISTRIBUTION.  [BOOK   IV. 

(£)  That  laborers  got  less  commodities  for  their  services 
than  before  the  expansion. 

(c)  That  merchants,  manufacturers,  and  business  men 
generally,  made  extraordinary  profits. 

(d)  That  speculators  flourished  beyond  all  precedent. 
But  the  importance  of  all  these  facts  and  considerations 

consists  in  this,  —  that  all  we  find  to  be  true,  theoretically 
and  practically,  during  the  great  expansion  occasioned  by 
the  war,  has  always  been  true,  in  degree,  during  every  expan- 
sion of  the  currency,  though  never  before  so  palpable,  be- 
cause never  before  so  excessive. 

We  have  assumed  that  the  capitalist  and  laborer  expend 
their  entire  incomes ;  but  so  far  as  a  part  is  saved,  in  so  far 
they  will  avoid  the  loss  they  would  otherwise  suffer  in  pur- 
chasing commodities. 


CHAPTER  IX. 

TAXATION.  —  PRINCIPLES   OP  TAXATION. 

Since  government,  or  social  organization,  is  among  the  wants 
of  man,  as  truly  as  food  or  clothing,  we  must  recognize 
it  in  the  science  of  political  economy,  and  provide  for  it. 
Government  implies  functionaries  and  expenditures.  How 
shall  these  be  maintained  ?  Evidently  by  the  contributions 
of  all,  for  all  are  interested  in  its  existence. 

It  may,  therefore,  rightfully  claim  a  share  of  all  that  labor 
and  capital  have  created. 

The  aggregate  of  all  sums  collected  by  government  is 
called  its  Revenue  ;  the  system  by  which  it  is  collected 
is  called  Taxation. 

Although  the  single  object  of  taxation  is  to  obtain  a  given 
amount  of  wealth  (generally  in  the  form  of  money),  yet  the 
modes  by  which  that  object  may  be  secured  are  various. 


CHAP.  IX.]  TAXATION.  307 

In  ancient  times,  taxation  was  often  imposed  by  the  arbi- 
trary fiat  of  the  ruler,  with  little  or  no  reference  to  equity, 
or  its  effect  on  the  prosperity  and  happiness  of  the  people ; 
but,  in  modern  civilization,  it  has  come  to  be  regarded  as 
altogether  the  most  difficult  and  delicate  task  government  is 
called  upon  to  perform. 

The  question  of  taxation,  in  its  various  bearings,  is  now 
made  the  subject  of  examination  and  discussion  in  all 
legislative  bodies ;  and  taxes  are  imposed,  in  all  constitu- 
tional governments,  not  at  the  caprice  of  the  rider,  but  by 
the  representatives  of  the  people. 

Until  within  a  few  years,  the  people  of  the  United  States 
have  been  so  fortunately  exempt  from  heavy  taxation,  that 
it  has  been  felt  to  be  a  matter  of  small  consequence  what 
the  expenditures  of  the  government  amounted  to,  and  still 
less  whether  they  were  wise  and  necessary.  That  day  has 
gone  by,  probably  not  soon  to  return. 

If,  then,  the  property  of  the  citizen  must  be  taken  to  meet 
the  exigencies  of  government,  it  becomes  highly  important 
that  those  from  whom  it  is  taken  should  feel  that  it  is  equi 
tably  done.  Nothing  in  relation  to  all  the  acts  of  govern- 
ment is  more  to  be  desired  than  that  its  mode  of  raising  a 
revenue  should  be  so  wisely  and  economically  arranged,  so 
manifestly  just  and  equal,  and  so  well  understood  by  all, 
that  no  opposition  to  its  demands  shall  arise  from  a  sense 
of  oppression. 

Desirable  as  this  would  be  under  any  form  of  govern- 
ment, it  is  manifestly  quite  indispensable  in  a  country  where 
there  is  no  force  superior  to  the  public  will,  and  where  it  is 
certain  no  taxes  can  be  collected  but  such  as  are  believed  to 
be  both  necessary  and  just. 

In  the  distribution  of  wealth,  as  has  been  before  stated, 
government  makes  a  peremptory  claim  to  so  much  as  its 
necessities,  real  or  supposed,  may  require. 

This  claim  is  not  only  peremptory,  but  prior  to  every 
other  claim.     The  laborer  must  contribute  a  part  of  his 


808  DISTRIBUTION.  [BOOK   IV. 

wages  ;  the  business  man,  of  his  profits ;  and  the  capitalist, 
of  his  interest,  or  rent. 

Every  man  knows,  or  should  know,  that  when  he  creates 
any  kind  of  wealth,  a  share  of  it  belongs  to  government. 
He,  in  fact,  creates  a  fund  out  of  which  government  is  to  be 
supported.  For  example,  should  a  man  pre-empt  a  section 
of  land  on  the  western  prairies,  and  by  his  labor  make  it  of 
the  value  of  ten  thousand  dollars,  government  has  a  lien 
upon  it  equal  to  all  the  taxation  it  may  choose  to  impose. 
The  value  of  the  farm  is  just  so  much  less  than  it  would 
otherwise  be,  by  the  burdens  which  it  is  known  the  govern- 
ment will  lay  upon  it.  For  example,  if  the  owner  could  sell 
it,  free  of  all  taxation,  instead  of  ten  thousand  dollars,  he 
could  get,  say,  eleven  thousand  dollars  for  it.  If  we  sup- 
pose that  the  annual  tax  imposed  on  the  farm  will  be  equal 
to  the  income  on  one  thousand  dollars,  then  the  farm  is- 
worth  one  thousand  dollars  less  on  this  account. 

If  the  seller  buys  another  farm,  or  any  other  property, 
with  his  ten  thousand  dollars,  he  gets  it  at  just  the  same 
reduction  as  he  sold  his  own  farm;  and, for  the  same  rea- 
son, all  property,  whether  personal  or  real,  whether  land  or 
merchandise,  is  exchanged  under  these  conditions  ;  and 
therefore  all  parties  creating  wealth  are  placed  on  a 
level. 

The  paramount  question,  in  regard  to  taxation,  is,  On 
what  principles  shall  it  be  founded  ?  Adam  Smith,  in  his 
"Wealth  of  Nations,"  written  almost  a  century  ago,  laid 
down  four  maxims,  or  principles,  which  have  been  so  gen- 
erally concurred  in  from  that  day  to  this,  that,  as  J.  Stuart 
Mill  says,  "  they  have  become  classic." 

I,  "  The  subjects  of  every  state  ought  to  contribute  to  the  sup- 
port of  the  government,  as  nearly  as  possible,  in  proportion  to  their 
respective  abilities  ;  that  is,  in  proportion  to  the  revenue  they  enjoy 
under  the  protection  of  the  state.  In  the  observation  or  neglect 
of  this  maxim  consists  what  is  called  the  equality  or  inequality  of 
taxation." 


CHAP.  IX.]  TAXATION.  309 

In  examining  this  proposition,  our  first  inquiry  is,  What 
is  meant  by  "  subjects  "  ?  We  answer,  Every  inhabitant, 
old  or  young,  male  or  female.  Women  ?  Certainly :  if 
they  have  a  revenue  or  income,  they  are  as  justly  bound  to 
contribute  to  the  government  as  men,  and  in  the  same  pro- 
portion. Many  women  have  large  wealth :  why  should  it 
go  untaxed  ?  Children  ?  There  are  some  such  who  are 
millionaires :  why  should  they  be  exempt  ? 

Idiots,  lunatics,  cripples  ?  Yes,  if  they  have  "  revenues." 
Many  such  persons  have  large  estates,  which  should  contrib- 
ute to  the  public  treasury. 

It  is  not  the  ability  to  hear  or  see  or  walk  that  is  taxed, 
but  the  income,  or  "  revenue." 

We  next  notice  the  condition  mentioned,  "  as  nearly  as 
possible." 

This  implies  that  it  may  not  be  practicable  to  secure  per- 
fect equality ;  indeed,  we  know  it  is  not,  but  such  should 
be  the  aim  of  government. 

II.  "  The  tax  which  each  individual  is  bound  to  pay  ought  to  be 
certain,  and  not  arbitrary.  The  time  of  payment,  the  manner  of 
payment,  the  quantity  to  be  paid,  ought  to  be  clear  and  plain  to  the 
contributor,  and  every  other  person." 

(a)  "  Certain,  and  not  arbitrary."  By  this,  Dr.  Smith 
evidently  meant  that  the  taxes  should  be  assessed  by  com- 
petent authority,  and  upon  fixed  and  well-known  principles. 
In  many  countries,  taxes  have  been,  and  in  some  are  still, 
farmed  out  in  gross  to  a  publican,  or  tax-gatherer,  who, 
under  the  authority  of  government,  imposes  such  sums  as 
he  pleases  to  exact. 

(5)  The  time  of  payment  should  be  "  clear  and  plain." 
The  citizen  should  know  when  he  pays ;  be  conscious  of  the 
fact  that  he  is  paying  the  government  a  certain  sum  at  the 
time  he  actually  does  it.  Otherwise,  he  will  be  liable  to 
great  impositions,  in  one  form  or  another. 

(c)  "  The  manner  and  the  quantity  plain."     This  for 


310  DISTRIBUTION.  [BOOK  17. 

the  same  reasons  as  just  stated.  He  certainly  ought  to 
know  how  he  pays,  and  how  much. 

(d)  Should  be  known  "  to  the  contributor,  and  everybody 
else."  In  the  method  of  taxation,  the  people  are  joint  part- 
ners :  what  one  does  not  pay,  another  must.  If  A  pays  less 
than  he  should,  B  and  C  must  pay  more ;  hence  the  right 
of  every  man  to  know,  not  only  what  he  pays,  but  what  his 
neighbor  does.  Otherwise,  how  can  he  judge  whether  he  is 
overtaxed  or  not  ? 

It  is  on  this  account  that  the  publication  of  tax-lists  is  a 
duty  on  the  part  of  the  taxing  power.  Then,  if  any  prop- 
erty is  omitted  by  accident  or  design,  it  will  probably  be 
found  out ;  for,  being  a  copartner,  each  man  is  interested 
in  the  taxes  of  every  other,  and  has  a  right  to  know  what 
they  are,  and  will  or  ought  to  give  notice  of  any  omission 
or  incorrect  valuation. 

III.  "  Every  tax  should  be  levied  at  the  time,  or  in  the  manner, 
which  is  most  likely  to  be  convenient  to  the  contributor  to  pay  it." 

As,  for  example,  when  the  harvest  has  been  secured,  and 
is  ready  for  market ;  when  the  fisherman  returns  with  his 
"  fare,"  <fec.  This,  though  not  a  very  important  considera- 
eration,  will  readily  be  admitted  as  proper. 

IV.  "  Every  tax  ought  to  be  so  contrived  as  to  take  out  and 
keep  out  of  the  pockets  of  the  people  as  little  as  possible,  over  and 
above  what  it  brings  into  the  treasury  of  the  state." 

Although  the  soundness  of  this  principle  would  seem  in- 
disputable, and  will  doubtless  be  theoretically  admitted  by 
all,  yet  Dr.  Smith  proceeds  to  enumerate  several  modes 
in  which  the  opposite  result  may  be  brought  about. 

First,  By  levying  the  tax  in  such  a  manner  that  a  great 
many  officers  will  be  required  for  its  collection,  who  will 
consume  a  great  part  of  the  produce  of  the  tax.  This  will 
depend  in  great  measure  on  the  machinery  employed  in  col- 
lecting the  public  imposts. 


CHAP.  IX.]  TAXATION.  311 

Second,  By  diverting  a  portion  of  the  labor  of  a  commu- 
nity from  a  more  to  a  less  profitable  employment.  For 
example,  so  heavy  a  tax  might  be  laid  on  carriages  as  to 
reduce  their  use  or  consumption  to  such  an  extent  that  the 
manufacturer  might  be  compelled  to  go  into  some  other  busi- 
ness less  productive.  This  has  often  been  done  by  unwise 
legislation. 

Third,  By  attaching  such  heavy  duties  as  to  occasion 
smuggling,  and  thus  create  a  multitude  of  officers  to  guard 
the  revenue. 

This  result  has  often  been  brought  about  in  European 
countries,  and  is  now  beginning  to  be  seriously  felt  in 
the  United  States,  under  the  heavy  duties  at  present  im- 
posed. 

Fourth,  By  subjecting  the  people  to  frequent  and  inquisi- 
torial visits,  and  interruptions  in  the  pursuit  of  business  and 
in  their  domestic  affairs,  thus  causing  annoyance  and  dissat- 
isfaction. 

We  now  add  still  another  principle,  which,  though  not 
among  those  laid  down  by  Dr.  Smith,  has  been  adopted 
in  every  country  having  any  considerable  taxation :  — 

V.  The  heaviest  taxes  should  be  imposed  on  those  commodities, 
the  consumption  of  which  is  especially  prejudicial  to  the  interests 
of  the  people. 

Having  stated  the  maxims  or  principles  which  should 
govern  the  imposition  of  taxes,  we  now  come  to  consider 
the  different  forms  of  taxation  which  have  been  adopted, 
and,  to  a  great  extent,  are  still  in  use,  by  the  different  gov- 
ernments of  the  world,  in  order  to  ascertain  in  how  far  they 
conform  to  principles  universally  admitted  as  correct. 

FORMS   OF   AMERICAN   TAXATION. 

Preliminary  to  an  examination  of  the  different  modes  of 
taxation,  it  may  be  proper  to  say,  that  there  are,  in  the 
United  States,  two  general  systems ;  viz.,  by  national  and 


312  DISTIilBUTION.  [BOOK    IV. 

by  State  authority.  The  national  government  imposes  taxes 
in  every  form,  direct  and  indirect,  except  upon  the  poll. 
The  State  governments  generally  rely  upon  direct  taxation ; 
and  the  poll-tax  is  one  of  the  forms  adopted. 

Under  State  authority,  counties,  cities,  towns,  and  school- 
districts  impose  taxes  ;  so,  also,  parishes  and  religious  cor- 
porations :  but  the  latter,  generally,  only  on  voluntary  mem- 
bership. 

Taxes  may  first  be  divided  into  two  kinds,  —  direct  and 
indirect.  A  direct  tax  is  demanded  of  the  person  who  it  is 
intended  shall  pay  it.  Indirect  taxes  are  demanded  from 
one  person,  in  the  expectation  that  he  will  indemnify  him- 
self at  the  expense  of  others.     Such  are  customs  and  excise. 

In  our  further  examination  of  the  subject,  we  shall  refer 
to  the  national  taxation  of  the  United  States,  and  the  State 
taxation  of  Massachusetts  ;  selecting  the  latter  State  only  for 
being  the  most  convenient,  and  as  representing  that  of  the 
individual  States  generally  with  considerable  exactness. 


CHAPTER  X. 

NATIONAL  TAXATION.  —  I.    CUSTOMS. 

These  are  taxes  upon  importations,  and  collected  through  the 
custom-houses.  Government  establishes  a  tariff;  that  is,  a 
list  of  duties  upon  such  articles  as  it  deems  best :  these  are 
paid  by  the  importer  before  he  can  gain  possession  of  his 
goods. 

Duties  are  generally  of  two  kinds,  —  specific  and  ad-valo- 
rem. Specific  duties  are  imposed  by  the  pound,  yard,  gallon, 
&c.  Ad-valorem  duties,  as  the  term  imports,  are  charged 
upon  the  value  of  the  goods,  as  twenty  per  cent  upon  an  in- 
voice of  silks,  hardware,  sugar,  &c. 

In  some  of  the  American  tariffs,  the  specific  principle  has 
predominated  ;  in  others,  the  ad-valorem.     There  has  always 


CHAP.  X.]  NATIONAL  TAXATION.  313 

been  a  struggle  when  the  tariff  was  to  be  changed ;  those 
favoring  specific  duties,  for  protection,  being  in  favor  of  spe- 
cific, those  of  the  opposite  views  contending  for  ad-valorem 
duties. 

There  are  difficulties  attending  both.  If  specific  duties 
are  laid,  they  operate  with  great  inequality.  For  example, 
suppose  a  duty  of  twenty-five  cents  per  pound  upon  tea. 
This  would  be  equal  to  a  taxation  of  one  hundred  per  cent 
on  that  which  cost,  originally,  twenty-five  cents,  which  the 
poor  man  must  pay ;  while  the  rich,  who  would  purchase 
tea  that  cost  seventy-five  cents,  would  pay  but  thirty-three 
per  cent,  or  one-third  as  much  per  cent  as  the  former. 

This  was  the  character,  to  a  large  extent,  of  British  taxa- 
tion. The  tax  on  tea  was,  for  a  long  time,  two  shillings  and 
sixpence  per  pound  (over  sixty  cents),  paid  alike  by  the 
hand-loom  weaver  and  the  wealthy  nobleman. 

When  laid  upon  cloth,  for  example,  a  specific  duty  fre- 
quently operates  in  a  most  oppressive  manner.  By  the 
American  tariff  of  1828,  a  duty  of  so  many  cents  was  laid 
upon  the  square  yard  of  coarse  woollens.  In  applying  the 
principle,  it  was  found  that  negro  cloths,  as  they  were 
called,  paid  more  than  two  hundred  and  fifty  per  cent. 
This  gave  rise  to  great  dissatisfaction,  and  was  the  ostensi- 
ble cause  of  the  nullification  movement. 

In  regard  to  ad-valorem  duties,  the  practical  difficulty  has 
been,  when  the  rates  were  very  high,  to  prevent  fraudulent 
invoices.  For  example,  the  importer  must  present  his 
original  invoice  at  the  custom-house,  and  make  oath  to  its 
correctness.  If  dishonest,  he  may,  by  connivance  with  the 
shipper,  furnish  false  papers,  showing  the  cost  to  be  much 
less  than  it  really  was. 

Precautionary  measures  have  been  adopted.  Appraisers 
have  been  appointed  to  determine  the  actual  value  ;  but, 
with  all  possible  care  on  the  part  of  the  government,  there 
is  danger  of  deception,  and  consequent  loss  to  the  revenue, 
as  well  as  injustice  to  the  honest  importer. 


314  DISTRIBUTION.  [BOOK   IV. 

Of  all  modes  of  raising  a  revenue,  that  by  customs  is 
confessedly  the  most  effective,  and  the  most  readily  accom- 
plished ;  and  its  great  importance,  as  one  of  the  chief  sources 
of  national  revenue,  demands  that  we  give  it  a  careful  con- 
sideration. 

The  first  principle  we  laid  down  was  "  that  all  should 
contribute,  as  nearly  as  possible,  in  proportion  to  their  re- 
spective abilities." 

As  all  duties  are  laid  upon  articles  of  general  consump- 
tion, it  will  at  once  be  seen  that  such  taxation  cannot  have 
an  equal  bearing,  because  men  are  thus  taxed  in  proportion 
to  what  they  consume,  not  in  proportion  to  their  wealth. 
The  poor  man,  with  a  large  family,  may  pay  more  than  a 
millionnaire.  A  case  is  personally  known  to  us  of  one  of  the 
latter  class,  who  actually  paid  less  on  dutiable  articles  than 
a  printer,  with  a  family,  who  received  but  fifteen  dollars  a 
week.  Men  are  taxed  in  this  way  according  to  the  mouths 
they  have  to  feed,  and  the  bodies  they  have  to  clothe. 

In  the  second  place,  we  inquire,  Is  "  the  time  and  manner 
plain  to  the  person  who  pays "  this  indirect  tax  ?  The 
farmer  who  purchases  a  carriage,  —  is  he  aware  that  he  is 
paying  a  government  tax  by  so  doing  ?  If  so,  does  he  know 
how  much  he  is  paying  ?  Does  he  understand  that  all  the 
materials,  except  the  wood,  have  paid  duties  to  government ; 
that  the  linings,  trimmings,  and  ornaments,  the  paints  and 
varnish,  and  the  tools  with  which  it  was  made,  have  all  been 
taxed ;  and  that  he  is  to  pay  the  sum  total  of  the  whole  ? 
Even  if  so,  can  he  or  any  one  else  easily  compute  the  amount 
of  taxation  which  enters  into  the  carriage  ?  So  of  all  com- 
modities which  have  passed  through  the  custom-house  :  peo- 
ple seldom  realize  when  or  how  much  they  are  taxed.  Then 
the  second  principle  Ave  have  laid  down  is  violated. 

But  we  shall  not  have  a  full  view  of  the  operation  of  du- 
ties on  foreign  merchandise,  unless  we  take  into  considera- 
tion the  fact  that  they  raise  the  price  of  the  home  product, 
if  there  is  one,  to  an  equal  degree  with  the  foreign  article. 


CHAP.  X.]  NATIONAL   TAXATION.  315 

and,  in  that  way,  largely  increase  the  burdens  of  the  people, 
without  adding  to  the  public  revenue.  We  will  take  the 
article  of  sugar  as  an  illustration.  In  1858,  there  was 
imported  sugar  to  the  amount  of  $23,000,000,  and  there 
was  grown  within  the  country  $25,000,000  ;  total,  $48,- 
000,000.  On  the  imported,  a  duty  was  paid  of  twenty-four 
per  cent,  equal  to  $5,520,000.  The  home  product  was 
raised  in  price,  of  course,  twenty-four  per  cent.  To  ascer- 
tain the  amount  thus  paid,  we  take  a  sum,  to  which  if 
twenty-four  per  cent  be  added,  the  total  will  be  $25,000,000. 
We  find  that  to  be  $20,161,291.  Deduct  this  last  from 
$25,000,000,  we  have  $4,838,709  as  the  difference,  which 
is  the  sum  the  people  had  to  pay  on  the  home  product. 
Then  it  stands  thus  :  — 

Duties  paid,  as  above $5,520,000 

Enhanced  cost  of  home  sugar 4,838,709 

Total $10,358,709 

To  this  we  must  add  twenty-five  per  cent,  as   the 

profits  of  the  wholesale  and  retail  dealers     .     .     .         2,589,077 

Whole  amount  paid $12,9 48,3s*', 

Of  this  government  gets 5,520,000 

Loss  to  consumers $7,428,380 

Hence  it  appears,  that  the  government  gets  in  the  present 
case  but  about  forty-three  per  cent  of  what  the  people  have 
paid.  We  have  estimated  that  the  merchant  charges  a  profit 
upon  what  he  pays  as  duties,  just  as  much  as  upon  any 
other  part  of  the  cost  of  his  commodities.  We  have  put  the 
profits  of  the  merchants  at  twenty-five  per  cent.  This,  we  are 
aware,  is  a  low  estimate ;  but  we  are  governed  by  the  con- 
sideration, that  there  would  be  no  importer's  profit  on  the 
amount  produced  at  home,  and  also  that  sugar  is  a  "  lead- 
ing article,"  in  the  language  of  trade,  upon  which  less  aggre- 
gate profits  are  made. 

It  is  apparent,  from  this  illustration,  that  the  real  taxation 
of  a  people  will  depend  very  much  upon  the  proportion  of 
duties  which,  designedly  or  not,  are  positively  protective. 


316  DISTRIBUTION.  [BOOK   IV. 

If,  in  the  case  presented,  instead  of  a  duty  upon  sugar,  the 
same  impost  had  been  laid  upon  tea  and  coffee,  which  arti- 
cles were  free  in  1858,  and  of  which  together  we  imported 
in  1858  about  the  same  amount  as  of  sugar,  while  we  pro- 
duced no  tea  and  coffee  ourselves,  the  case  would  stand  as 
follows :  — 

Tea  and  coffee  imported $23,000,000 

Duties,  twenty-four  per  cent $5,520,000 

Importers'  profits,  fifteen  per  cent 828,000 

$6,348,000 
Jobbers'  profits,  ten  per  cent 634,800 

$6,982,800 
Retailers'  profits,  twenty  per  cent 1,396,560 

Total,  paid  by  the  people $8,379,360 

Of  this  amount,  the  government  received     $5,520,000 
Merchants'  profits,  paid  by  the  people  .        2,859,360 

$8,379,360 

The  saving  to  the  people  in  this  case  would  stand  thus  :  — 

Paid  by  the  sugar  taxation,  as  shown  before  .  .  .  $12,948,386 
Paid  by  tax  on  tea  and  sugar 8,379,360 

Saved  to  the  people,  in  one  year $4,569,026 

Such  is  the  wide  difference  between  duties  imposed  for 
revenue  and  those  laid  for  the  advantage  of  home  produc- 
tions. Some  cases  of  protection  would  exceed  this  ;  others 
would  come  far  short :  but  the  principle  is  shown  by  this 
illustration. 

CUSTOMS   AN   EXPENSIVE  MODE   OP  TAXATION. 

But,  setting  aside  all  consideration  of  the  additional  bur- 
den of  taxation  occasioned  hj  protection,  as  just  illustrated, 
we  find  this  system  is  entirely  at  variance  with  our  fourth 
maxim,  which  was  "  that  no  more  should  be  taken  or  kept 


CHAP.  X.]  NATIONAL  TAXATION.  317 

out  of  the  pockets  of  the  people  than  absolutely  necessary" 
This  will  be  seen  by  the  following  illustration :  — 

Supposing    the   custom-house   duties   collected    to 

amount,  as  in  1864,  in  round  numbers,  to  .  .  $100,000,000 
Expenses  of  collecting,  in  all 10,000,000 

Total  amount  received  by  the  treasury    .     .       $90,000,000 

We  estimate  the  expense  of  collecting  at  ten  per  cent ;  but 
including  all  salaries  and  charges,  and  interest  upon  invest- 
ments made  by  government,  the  expense  is,  doubtless,  some- 
what greater ;  but,  to  prevent  dispute,  we  assume  that  the 
net  amount  is  ninety  million  dollars.  To  get  this  sum,  how 
much  is  paid  by  the  people  ? 

We  will  suppose  that  the  importer's  profit  is  fifteen  per 
cent,  the  jobber's  ten,  and  the  retailer's  twenty  per  cent. 
The  matter  then  will  stand  thus :  — 

Original  duties  paid $100,000,000 

Importers'  profits,  fifteen  per  cent 15,000,000 

$115,000,000 
Jobbers'  profits,  ten  per  cent 11,500,000 

$126,500,000 
Retailers'  profits,  twenty  per  cent 25,300,000 

Total,  paid  by  the  people $151,800,000 

Deduct  gross  amount  paid  into  the  treasury  .     .     .        100,000,000 

Taken  out  of  the  pockets  of  the  people,  and  not  paid 

in  the  public  treasury $51,800,000 

or  more  than  fifty  per  cent  extra  taxation. 

In  regard  to  the  general  correctness  of  these  estimates, 
no  well-informed  person  can  have  any  doubt.  Hon.  George 
Opdyke,  a  distinguished  merchant,  late  Mayor  of  New  York. 
in  a  small  but  excellent  work  on  "  Political  Economy,"  pub- 
lished in  1851  (page  200),  computes  the  importers'  profits 
at  fifteen,  the  jobbers'  at  ten,  and  the  retailers'  at  twenty -five. 
He  had  the  best  of  means  for  knowing  the  amount  of  the 


318  DISTRIBUTION.  [BOOK   IV. 

importers'  profits.  The  retailers'  were  a  matter  of  estimate 
with  him.  We  have  supposed  that  they  might  he  somewhat 
too  high,  and  have  therefore  placed  them  at  twenty  per  cent. 
This,  considering  that  it  is  to  be  applied  to  all  retail  sales, 
not  only  in  cities  and  towns,  but  in  the  most  remote  dis- 
tricts of  the  country,  is  undoubtedly  within  actual  limits. 
As  long  ago  as  1849,  we  made  such  investigations  as  satis- 
fied us  of  the  correctness  of  the  estimates  we  now  give,  and 
published  tables  at  that  time,  illustrating  the  principle  laid 
down. 

In  regard  to  customs  duties,  then,  we  cannot  but  conclude, 
that,  while  they  are  a  convenient  and  prolific  source  of 
revenue,  they  are  very  unequal  and  expensive,  and  little  in 
accordance  with  the  principles  of  justice  and  equality. 

BOUNTIES. 

At  this  point,  it  may  be  most  proper  to  speak  of  the  effect 
of  bounties.  If  a  home  product  is  to  be  encouraged  by  gov- 
ernment, it  is  desirable  that  it  should  be  done  as  economi- 
cally as  possible ;  or  in  such  a  manner  as  to  impose  the 
least  taxation  and  loss  upon  the  public,  while  it  shall  be  as 
effective  as  possible  in  securing  the  object. 

Let  us  take  the  sugar  crop  of  1858,  just  referred  to,  as  an 
illustration.  It  amounted  to  $25,000,000.  To  protect  this 
to  the  amount  of  twenty-four  per  cent,  the  people  paid,  as 
we  have  shown,  $12,948,386,  of  which  the  government 
realized  but  $5,500,000.  Here  was  a  clear  loss  to  the  con- 
sumers of  $7,428,386. 

Suppose,  now,  that  instead  of  this  protective  duty  of 
twenty-four  per  cent,  a  bounty  of  equal  amount  (twenty- 
four  per  cent)  had  been  paid  by  the  government.  The  mat- 
ter would  then  stand  thus :  twenty-four  per  cent  on  $20,- 
161,291  is  $4,838,709,  which  the  people  would  pay  to  the 
sugar  growers,  instead  of  $7,427,386  they  were  obliged  to 
pay  through  protection ;   a  saving  of  $2,588,677,  equal  to 


CHAP.  X.]  NATIONAL  TAXATION.  319 

thirty-five  per  cent  of  the  amount  paid  under  the  protective 
system. 

This  principle  applies,  in  all  cases,  where  an  article  is 
actually  protected,  and  shows  that  bounties  are  by  far  the 
most  economical  form  of  governmental  assistance.  Boun- 
ties, as  a  means  of  protection,  have  been  but  little  resorted 
to  by  governments.  The  reason  is  obvious.  The  evident 
injustice  of  giving  to  one  class  of  men  a  premium  upon  their 
productions,  in  order  that  they  may  be  encouraged  in  a 
branch  of  industry  that  cannot  live  without  contributions 
from  the  public  treasury,  is  so  apparent,  and  evidently  unrea- 
sonable and  unwise,  that  the  people  of  no  country  would 
long  tolerate  it.  It  is,  therefore,  vastly  more  feasible  to 
give  protection  by  duties  on  the  foreign  article,  although 
much  more  wasteful  and  onerous. 

EXCISE. 

Excise  are  the  opposite  of  custom-house  duties,  being  laid 
wholly  upon  articles  of  domestic  production,  and  paid  first 
by  the  producer  ;  and,  after  the  articles  have  passed  through 
the  hands  of  the  merchants,  with  their  profits  added,  the 
sum  total  is  paid  by  the  consumers. 

This  mode  of  taxation  is  obnoxious  to  the  same  objections 
that  may  be  made  to  customs.  Excise  is  unequal,  because 
it  falls  on  rich  and  poor  alike  ;  not  in  proportion  to  their 
wealth,  but  what  they  consume.  The  merchants'  profits  are 
not  quite  so  large  on  these  as  on  custom  duties,  because 
home  products  do  not  ordinarily  pass  through  as  many  hands 
as  foreign  merchandise.  The  expense  of  collection,  though 
only  perhaps  about  one-fourth  part  as  great,  is  still  a  heavy 
charge  upon  the  revenue ;  but  the  most  popular  objection  to 
excise  is  the  espionage  which  it  necessarily  requires.  It  is, 
notwithstanding,  a  very  productive  source  of  revenue,  and 
must  be  resorted  to  by  governments  heavily  indebted.  Do- 
mestic manufacturers  are  not  injured  by  excise  duties,  unless 


320  DISTRIBUTION.  [BOOK   IV. 

they  so  increase  the  cost  of  their  commodities  as  to  expose 
them  to  foreign  competition.  Profits  upon  such  duties  are 
charged  upon  commodities  as  a  part  of  the  general  expense 
of  their  production. 

TAXES   ON   DISADVANTAGEOUS  CONSUMPTION. 

The  principle  has  everywhere  been  acted  upon  by  govern- 
ments, that  heavy  taxes  are  to  be  laid  on  commodities  "  the 
consumption  of  which  is  especially  prejudicial  to  the  inter- 
ests of  the  people."  This  is  in  accordance  with  our  fifth 
maxim. 

There  are  two  strong  and  sensible  arguments  in  favor  of 
this  kind  of  taxation.  One  is,  that,  if  it  should  cause  a  fall 
ing-off  in  the  consumption  of  the  articles  so  taxed,  no  detri- 
ment would  come  to  individuals  or  the  public ;  but,  on  the 
other  hand,  their  moral  and  social  condition  would  be  pro- 
moted, and  the  power  of  production  increased. 

The  other  consideration  is,  that  all  those  who  choose  to 
abstain,  as  they  can  do  without  injury,  from  the  specially 
taxed  articles,  will  avoid  the  payment  of  the  tax  altogether : 
such  taxes  are  voluntarily  assumed  by  those  who  pay  them. 

This  kind  of  taxation  is  found  to  be  far  more  productive, 
in  proportion,  than  any  other ;  and  consumption  is  less 
affected  by  heavy  imposts.  According  to  Professor  Levi, 
the  tvorMng  classes  of  Great  Britain  pay  over  ten  millions 
sterling  annually,  in  taxes  upon  tobacco  and  intoxicating 
drinks.  The  whole  amount  raised  upon  these  two  articles 
in  1858  was  as  follows :  — 

British  and  foreign  spirits  and  wine £18,500,000 

Tobacco 5,500,000 

£24,000,000 

or  about  one  hundred  and  twenty  millions  of  dollars,  equal 
to  four  dollars  to  each  inhabitant ;  or,  allowing  five  persons 
to  a  family,  twenty  dollars  to  each  family.  More  than  a 
third  part  of  the  whole  British  revenue  is  raised  by  the  taxes 


CHAP.  X."J  NATIONAL  TAXATION.  321 

upon  these  articles  alone  ;  a  remarkable  fact,  especially 
worthy  the  attention  of  the  American  government  at  the 
present  time. 

STAMPS. 

There  is  still  another  mode  of  supplying  the  treasury; 
viz.,  by  the  sale  of  stamps.  This  is  an  important  branch  of 
the  public  revenue  in  all  highly  taxed  communities.  Stamps 
are  required  upon  all  letters,  newspapers,  and  other  matter 
carried  through  the  mails ;  upon  all  bills  of  merchandise 
and  bills  of  lading ;  upon  legal  instruments  of  every  name 
and  nature ;  upon  patent  medicines,  &o. 

This  is  cheap  and  efficient,  and  as  desirable  as  any  form 
of  indirect  taxation.  Of  course  it  bears  unequally  upon 
different  classes,  and  is  more  or  less  vexatious,  particu- 
larly when  first  introduced  ;  but  habit  will,  after  a  while, 
reconcile  the  people  to  it,  and  it  is  as  little  likely  to  be 
resisted  or  evaded  as  any  other  form  of  exaction.  It  is  also 
collected  with  very  little  expense,  as  no  functionaries  are 
necessary.  It  should  therefore  be  carried  out,  as  far  as 
practicable.  The  British  government  raises  a  large  sum  in 
this  way :  eight  millions  sterling  are  received  for  stamps. 
The  United-States  treasury  received,  for  the  year  ending 
June  30,  1865,  the  sum  of  111,162,392. 

LICENSES. 

These  are  granted  by  both  national  and  State  authority, 
for  a  great  variety  of  purposes.  It  is  a  more  economical 
and  convenient  mode  of  raising  a  revenue  than  by  excise 
on  manufactures,  &c,  requiring  only  annual  renewal.  There 
is  also  less  opportunity  for  fraud  and  evasion.  It  is  there- 
fore a  very  desirable  form  of  taxation  ;  and  the  United-States 
government  has  already  availed  itself  of  this  mode  of  raising 
revenue,  to  the  extent  of  $12,613,478  for  the  financial  year 
1865 ;  and  this  sum  may  doubtless  be  greatly  increased  in 
the  future. 

21 


822  DISTRIBUTION.  [BOOK   IV. 


CHAPTER  XI. 

NATIONAL  TAXATION    (continued).  —  INCOME  TAX. 

It  is  unnecessary  to  say  that  this  tax  is  in  perfect  accord- 
ance with  the  first  maxim  laid  down  by  Adam  Smith,  that 
"  every  man  should  be  taxed  according  to  the  revenue  he 
derives  under  the  state,"  and  also  consistent  with  every 
other  principle  we  have  stated.  It  is  "  clear  and  plain  "  to 
the  contributor,  and  every  other  person.  The  income-tax 
payer  knows  when  and  how  much  he  pays ;  and  it  can  be 
collected  as  conveniently  and  economically  as  any  other. 

This  kind  of  tax  was  established  in  England  in  1798, 
during  the  wars  with  Napoleon,  but  was  abolished  soon 
after  the  close  of  that  struggle.  About  1842,  however,  the 
government,  finding  its  revenues  fall  short  of  the  expendi- 
tures, restored  the  tax ;  and  it  has  been  continued  to  the 
present  time. 

This  tax  was  unknown,  we  believe,  in  the  United  States, 
until  the  civil  war,  when  it  was  laid  by  Congress,  and  has 
been  continued  thus  far.  Total  amount  collected  for  the 
year  ending  June  80,  1865,  was  120,740,451.33 ;  while  the 
whole  internal  revenue,  for  the  same  time,  was  $211,129,- 
529.17  ;  so  that  the  income  tax  produced  nearly  ten  per 
cent  of  the  amount. 

Of  all  modes  of  taxation,  this  is  the  most  just  and  equita- 
ble. Every  man  can  afford  to  pay  according  to  his  income, 
and  ought  to  do  so.  There  is  no  other  perfect  standard  of 
taxation  ;  none  other  which  does  not  inflict  more  or  less 
hardship  and  injustice. 

The  tax  comes  upon  the  annual  private  revenue  of  each 
year,  out  of  which  the  government  should  receive  its  share 
for  the  annual  revenue  of  the  state.  If  the  private  revenue 
is  increased,  so  should  be  the  contribution  to  the  public  rev- 


CHAP.  XI.]  NATIONAL  TAXATION.  323 

enue :  if  the  former  is  diminished,  the  latter  should  be  also. 
This  is  fair  and  just.  Were  it  to  supersede  all  other  forms 
of  taxation,  perfect  equality  would  be  established  ;  property 
and  labor  would  bear  each  its  just  share  of  the  public  bur- 
dens. To  do  this,  it  would  be  necessary  to  ascertain  the 
income  of  every  man  ;  of  every  laborer,  whether  his  wages 
amounted  to  one  hundred  or  one  thousand  dollars  a  year ; 
of  every  professional  man ;  of  every  operative,  male  or  female ; 
every  capitalist,  banker,  merchant,  and  mechanic.  Upon  the 
gross  income,  thus  ascertained,  the  general  tax  should  be 
levied,  pro  rata.  In  this  way,  it  is  clear,  equality,  as  far  as 
that  is  practicable,  would  be  established  ;  and  each  member 
of  the  community  would  be  made  to  bear  his  just  proportion, 
and,  of  course,  would  be  obliged  to  save,  in  bis  expenditures, 
to  that  amount. 

The  objection  to  this  form  of  taxation  is  the  difficulty  of 
ascertaining  what  a  person's  income  actually  is.  In  the 
first  place,  it  is  said  that  many  do  not  know  their  affairs 
so  as  to  be  able  to  state  their  true  income.  There  is  doubt- 
less much  of  truth  in  this  ;  but  the  very  fact  that  such  a  tax 
is  certain  to  be  enforced  every  year  will,  in  a  short  time, 
remove  this  difficulty  to  a  considerable  extent,  because  men 
will  be  compelled  so  to  keep  their  accounts  as  to  know  what 
they  gain  or  lose.  The  operation  of  the  law  in  this  respect, 
therefore,  is  favorable  to  private  interest ;  since  the  more 
intelligent  every  man  is  in  regard  to  his  affairs,  the  better 
for  him.  Such,  we  believe,  has  been  the  operation  of  the 
income  tax  in  England. 

Secondly,  It  is  said  that  some  men  will  be  dishonest  in 
their  disclosures  and  statements,  and  therefore  a  correct 
result  cannot  be  reached. 

That  many  men  are  dishonest  there  can  be  no  doubt ;  but, 
when  the  law  taxing  incomes  is  regularly  enforced  from 
year  to  year,  the  difficulty  of  concealment,  on  the  part  of  the 
tax-payer,  is  constantly  increasing.  His  neighbors  and  com- 
petitors in  business  have  an  eye  upon  him,  if  they  believe 


324  DISTRIBUTION.  [BOOK   IV. 

ho  is  making  false  statements ;  and  he  cannot  long  escape 
detection.  Besides,  as  a  man  may  be  put  under  oath  (and, 
by  the  way,  ought  always  to  be),  the  crime  of  perjury  must 
be  committed  with  every  misrepresentation  of  his  affairs. 
The  immense  difference  between  the  reported  incomes  of 
the  United  States  in  1864  and  those  of  1863,  even  after 
allowing  for  the  general  rise  of  prices,  serves  to  give  an 
idea  of  the  advance  that  will  naturally  be  made  in  the  appli- 
cation of  the  income  tax. 

The  third  objection  made  is,  that  men  do  not  always  like 
to  have  their  incomes  known.  But  why  should  they  not  ? 
We  have  already  said,  that,  in  the  matter  of  taxation,  all 
are  copartners,  having  a  pro-rata  interest.  What  one  does 
not  pay,  others  must.  All,  therefore,  may  rightfully  demand 
such  information  as  shall  furnish  the  means  of  assessing  a 
correct  tax. 

Besides  this,  an  income  tax  well  enforced  will  be  the 
means  of  diffusing  a  large  amount  of  information  most  im- 
portant in  regard  to  the  credits  which  business  men  are 
required  to  give.  The  position  and  ability  of  every  man 
will  be  better  understood.  This  is  not  an  unimportant  con- 
sideration. It  is  difficult  to  see  any  reason  for  objecting  to 
a  disclosure  of  income  for  taxation,  which  does  not  equally 
apply  to  the  disclosure  of  property  for  the  same  purpose. 

Estimated  Income.  —  But  it  may  be  said  that  the  income- 
tax  principle  would  not  work  well  in  some  communities, 
because  a  considerable  share  of  its  wealth  produces  no  in- 
come, and  therefore  would  go  untaxed  ;  that  this  is  espe- 
cially so  in  the  new  States,  where  vast  quantities  of  land  are 
held  which  yield  no  rent  or  income  whatever. 

But  this  is  a  mistaken  view  of  the  matter.  If  these  lands 
are  appreciating  from  year  to  year,  —  and,  as  a  general  fact, 
owing  to  the  increase  of  population,  they  are,  —  the  income 
from  them  is  as  real  as  any  other ;  but  it  is  a  deferred  in- 
come, which  is  sure  to  come  in  the  end.  All  such  property, 
whether  in  city  lots  or  farms,  should,  if  an  income  tax  only 


CHAP.  XI.]  NATIONAL  TAXATION.  325 

were  levied,  be  estimated  yearly,  according  to  its  increasing 
value,  and  be  assessed  upon  that  principle. 

We  do  not  advocate  the  adoption  of  the  income  tax  as  a 
substitute  for  all  other  modes  of  taxation :  our  purpose  is 
to  show,  that,  so  far  as  practicable,  it  is  the  most  just  and 
economical  mode  of  raising  a  revenue. 

TAXATION    UPON    EXPORTS. 

Whenever  a  people  produce  more  of  any  commodity  than 
is  required  for  their  own  consumption,  the  surplus  must 
find  a  foreign  market,  or  the  production  will  not  be  ex- 
tended beyond  the  home  demand.  Any  thing,  therefore, 
which  has  a  tendency  to  .prevent  the  sale  of  domestic  pro- 
ducts in  a  foreign  market  must  discourage  home  industry. 
Such  being  the  case,  what  must  be,  in  general,  the  effect  of 
duties  laid  upon  exports  ?  Evidently  to  reduce  the  amount 
exported,  and  benefit  the  foreign  producer  of  the  articles 
thus  taxed.  Take  the  article  wheat  as  an  illustration.  It 
can  be  produced  in  almost  every  country,  and  is  an  article 
of  export  from  many.  Such  are  the  facilities  afforded  by 
commerce,  that  the  wheat  of  one  country  must  enter  into 
competition  with  the  wheat  of  every  other  country ;  and  it 
may  therefore  be  taken  as  a  fair  exponent  of  commodities 
in  general. 

If  the  price  of  wheat  in  New  York  is  one  dollar  and  fifty 
cents  under  a  currency  at  par  with  specie,  it  is  because  it 
can  be  shipped  to  Liverpool  or  some  other  foreign  port,  and, 
after  paying  freight  and  charges,  make  a  remittance  equal 
to  one  dollar  and  fifty  cents  in  specie.  Under  these  circum- 
stances, we  will  suppose  an  export  duty  of  twenty-five  cents 
per  bushel  is  laid  on  wheat. 

Would  the  New-York  dealer  now  pay  one  dollar  and  fifty 
cents  per  bushel  for  the  wheat?  Certainly  not,  since  he 
could  not  export  it  without  paying,  in  addition,  a  duty  of 
twenty-five  cents  per  bushel ;  and,  unless  the  article  should 


326  DISTRIBUTION.  [BOOK   IV. 

rise  abroad,  he  would  lose  to  the  amount  of  the  duty  paid. 
Of  course,  he  now  offers  but  one  dollar  and  twenty-five 
cents  instead  of  one  dollar  and  fifty  cents,  and  the  difference 
is  the  loss  of  the  producers,  who,  in  consequence  of  the 
export  duty,  are  at  a  disadvantage  of  twenty-five  cents  per 
bushel,  as  compared  with  the  wheat-growers  of  every  other 
country.  They  have  nothing  left  but  to  accept  a  reduction 
of  twenty-five  cents  per  bushel,  or  limit  their  production  in 
the  future  to  the  amount  required  for  home  consumption. 
When  they  have  done  this,  the  price  of  wheat  will  corre- 
spond with  the  prices  of  all  the  other  agricultural  products 
of  the  country,  whatever  that  price  may  be :  for  all  such 
products  will  be  affected  by  an  export  duty  laid  on  the 
great  staple  of  agriculture  ;  every  kind  of  grain  and  meat, 
as  truly  as  the  wheat  on  which  the  duty  was  laid,  though 
not,  perhaps,  in  the  same  degree.  But,  since  the  foreign 
market  has  been  to  a  large  extent  dependent  for  its  full 
supply  upon  American  wheat,  will  not  the  price  advance  to 
such  a  point  as  to  bring  up  the  price  of  the  American  arti- 
cle ?  If  the  American  wheat  must  be  had,  such  a  price  must 
be  offered  as  will  bring  it.  But,  as  soon  as  wheat  begins  to 
rise  abroad  from  this  cause,  a  larger  supply  will  be  attracted 
from  other  wheat -growing  countries,  in  which  production 
will  be  stimulated  to  the  extent  it  is  depressed  in  the  United 
States.  The  price  having  risen,  a  limited  amount  will  go 
from  our  ports  ;  but  wheat  will  not  rise  permanently  to  such 
a  point  abroad  as  to  make  it  twenty-five  cents  higher  in  the 
United  States.  The  American  producer  must,  in  any  event, 
take  a  part  of  the  loss,  and  the  foreign  consumer  the  bal- 
ance ;  while  foreign  producers,  having  an  unnaturally  high 
price,  will  extend  their  cultivation  as  far  as  possible. 

The  unquestionable  effect  of  export  duties  is  to  lessen 
production  at  home,  and  give  encouragement  to  foreign 
labor.  This  is  a  general  principle,  applicable  to  every  com- 
modity of  home  growth  or  production,  except  such  as  one 
nation  may  have  a  virtual  monopoly  of;  that  is,  may  be  able 


CHAP.  XI.]  NATIONAL  TAXATION.  327 

to  produce  in  so  much  greater  perfection,  01  at  so  much 
lower  rate  of  cost,  or  both,  that  no  other  nation  can  com- 
pete with  it.  In  that  case,  the  exporting  nation  might 
impose  a  duty,  which,  while  it  should  create  a  revenue, 
would  not  lessen  production  materially,  if  at  all. 

TAXATION   OP   COTTON. 

Many  persons  are  of  the  opinion,  that  an  export  duty,  or 
its  equivalent  in  the  form  of  excise,  might  be  laid  upon 
cotton  without  any  detriment  to  the  general  interest  of  the 
trade  of  the  country,  while  it  would  produce  a  considerable 
revenue  at  the  expense  of  the  foreign  consumers. 

It  is,  then,  an  important  economical  and  financial  ques- 
tion to  the  people  of  the  United  States,  whether  the  peculiar 
advantages  they  have  over  all  other  cotton -growing  coun- 
tries give  them  such  a  monopoly  as  to  enable  them  to  lay 
an  export  duty  upon  it,  without  any  immediate  or  remote 
injury  to  themselves. 

There  are  several  considerations  which  go  to  prove  that 
such  is  the  case,  some  of  which  we  shall  notice. 

I.     UNIVERSAL  DEMAND   FOR   COTTON.* 

"There  are  only  four  articles  of  any  considerable  importance 
used  in  the  manufacture  of  clothing.  These  are  wool,  silk,  flax, 
and  cotton ;  two  animal  and  two  vegetable  productions.  The  first 
of  these,  though  quite  indispensable  in  the  high  latitudes,  is  only 
partially  available  in  the  lower,  and  can  be  used  but  little  in  the 
tropics.  Silk,  while  an  article  from  which  beautiful  and  elegant 
fabrics  can  be  made,  is  not  adapted  to  general  use,  and  being,  like 
wool,  an  animal  product,  cannot  be  furnished  in  sufficient  quantity, 
or  at  so  low  a  rate  as  to  be  made  available  for  the  greater  part  of 
mankind.  Flax  being  a  vegetable  production,  and  its  culture 
adapted  to  a  great  variety  of  soils  and  climates,  might  doubtless 
be  produced  in  any  desired  quantity;  but,  like  silk,  it  would  but 
partially  meet  the  wants  of  that  large  portion  of  the  population  of  the 
globe  where  snows  and  frost  prevail  a  considerable  part  of  the  year 

*  Extract  from  the  author's  speech  in  Congress,  Feb.  18,  1863. 


328  DISTRIBUTION.  [BOOK   IV. 

"  After  looking  at  these  several  commodities,  then,  we  find  that 
an  article  is  needed  which  shall,  as  nearly  as  possible,  combine  the 
peculiar  properties  and  advantages  of  all  of  them ;  one  that  can 
be  cheaply  and  bountifully  produced,  and  that  may  most  readily  be 
converted  into  clothing,  having,  at  pleasure,  the  warmth  of  wool,  or 
the  elegance  or  lightness  of  silk  or  linen.  Cotton  we  find  to  be 
just  that  article,  combining  in  a  most  wonderful  degree  the  advan- 
tages of  wool,  silk,  and  flax.  The  earth  has  one  thousand  million 
inhabitants,  and  each  and  every  one  of  these  need  cotton.  There 
is  no  exception.  Not,  indeed,  that  human  beings  cannot  possibly 
exist  without  it,  but  their  welfare  and  happiness  are  promoted  by 
its  use." 

II.     RESTRICTED   CULTURE. 

"  While  cotton  is  one  of  the  greatest  necessities  of  mankind,  we 
find  its  successful  culture  confined  to  a  very  limited  portion  of  the 
earth's  surface.  I  say  successful  culture ;  for  although  it  may  be 
raised  in  India,  Egypt,  and  other  countries  in  similar  latitudes,  yet 
the  quality  is  so  inferior,  the  quantity  to  the  acre  so  limited,  and  the 
labor  so  ineffective,  that  the  countries  in  question  do  little  more 
than  supply  their  own  wants. 

"  It  is  reserved  to  the  States  of  the  American  Union  lying  in 
immediate  proximity  to  the  Gulf  of  Mexico  to  furnish  the  world 
with  the  article  in  such  quantities,  and  of  such  quality,  as  to  meet 
the  general  demand.  The  culture  of  the  article  began  prior  to  the 
Revolution ;  but  it  did  not  become  an  article  of  foreign  export  till 
1784,  when  eight  bales  were  shipped  to  Liverpool.  These  were 
seized  by  the  custom-house  officers,  on  the  ground  that  they  could 
not  be  of  American  production." 

III.    INCREASE  OF  PRODUCTION  AND  ADVANCE  OF  PRICE. 

"  No  very  great  extension  of  the  cultivation  of  cotton  was  real- 
ized until  1792,  when  Eli  Whitney  invented  the  cotton-gin  ;  but, 
from  that  moment,  it  increased  with  wonderful  rapidity.  The  value 
of  the  export  of  cotton  was,  — 

In  1821 §20,900,000 

In  1830 29,000,000 

In  1840 63,000,000 

In  1850 71,000,000 

In  1860 191,000,000 


CHAP.  XI.]  NATIONAL  TAXATION.  329 

"  This  amount,  it  will  be  observed,  is  over  and  above  the  amount 
consumed  in  the  United  States.  The  whole  product  in  1850  was 
2,096,70G  bales  ;  in  1860,  4,669,770  bales.  Mark  especially  the 
great  increase  from  1850  to  1860,  of  one  hundred  and  thirty  per 
cent! 

"  But  the  more  striking  and  noticeable  fact  is,  that,  while  the 
production  had  increased  at  this  enormous  rate,  the  prices  also  had 
advanced  twenty-five  per  cent.  According  to  the  financial  report 
of  1861,  the  average  price  of  cotton  from  1840  to  1850  was  but 
8.2  cents  per  pound  ;  while,  from  1850  to  1860,  the  average  price 
was  10.5  cents  per  pound,  —  a  difference,  it  will  be  seen,  of  a  little 
over  twenty-five  per  cent. 

"  Tbe  difference  between  the  value  of  the  entire  crop  of  cotton, 
including  all  consumed  at  home  and  exported,  is  still  more  remark- 
able. In  1850  it  amounted  to  but  $117,619,947  ;  while,  in  1860,  it 
was  $308,865,280,  —  showing  an  increase  of  value  of  nearly  two 
hundx*ed  per  cent,  owing,  of  course,  to  the  increase  of  quantity 
and  the  advance  of  price. 

"  Here,  then,  is  the  singular  fact,  unparalleled,  perhaps,  in  the 
commercial  history  of  the  world,  that,  while  the  production  was 
increasing  at  a  rate  so  prodigious,  the  price  was  constantly  advan- 
cing. This  is  contrary  to  all  the  ordinary  laws  of  trade.  As 
production  increases,  prices  fall ;  but  in  this  case,  instead  of  a 
decline,  we  find  a  great  advance  of  price." 

Do  not  these  facts  and  considerations  show  conclusively, 
that  the  United  States  have  such  advantages  over  all  others 
in  raising  cotton  that  they  may  to  a  certain  extent  dictate 
the  terms  of  sale  ?  In  just  so  far  as  this  is  true,  might  an 
export  duty  be  laid  which  would  fall  entirely  on  the  foreign 
consumer,  without  any  injury  to  the  American  cotton-grower. 

Suppose  an  export  duty  of  five  cents  per  pound.  The 
superiority  and  desirableness  of  the  American  article  are 
so  great  that  it  cannot  be  supposed  the  demand  would  be 
lessened  in  any  appreciable  degree.  From  what  we  have 
seen  during  the  Rebellion,  need  we  fear  that  the  de- 
mand would  be  perceptibly  curtailed  ?  If  not,  then  no 
damage  would  come  to  the  grower ;  while  a  large  revenue 


330  DISTRIBUTION.  [BOOK    IV. 

would  be  secured  by  tbe  government  at  tbe  expense  of  the 
foreign  consumer. 

The  whole  cotton  crop  of  18G0  was  4,669,770  bales, 
which,  at  500  pounds  to  a  bale,  give  a  total  of  2,334,500,000 
pounds,  which  at  five  cents  duty,  or  excise,  would  yield 
$11(1,725,000.  To  determine  what  rate  of  duty  or  excise 
should  be  laid  must  be  a  matter  of  experiment.  If  the 
rate  were  found  too  high,  —  that  is,  so  high  as  to  reduce 
consumption,  —  it  should  be  lowered;  or,  if  too  low,  it 
could  be  raised. 

The  immense  extent  to  which  the  cultivation  of  cotton 
in  the  United  States  may  and  doubtless  will  be  carried  is 
shown  by  Edward  Atkinson,  Esq.,  of  Boston,  a  most  reli- 
able statistician,  in  his  map  of  the  cotton  kingdom ;  from 
which  it  appears  that  while  the  whole  area  within  the  United 
States  adapted  to  profitable  cotton  culture  is  666,196  square 
miles,  only  10,888  are  in  actual  use  for  that  purpose,  or 
but  1.634  per  cent ;  that  is,  less  than  two  per  cent.  He 
remarks,  that,  "  with  free  labor,  the  capacity  of  the  South  to 
raise  cotton  cannot  be  less  than  one  hundred  million  bales  " 
against  about  four  and  a  half  millions  in  1860  ;  so  that  less 
than  one-twentieth  of  the  capacity  of  the  country  has  yet 
been  developed. 

The  principal  point  to  be  considered  in  regard  to  cotton, 
or  any  other  domestic  product,  is  whether  an  export  or 
excise  duty  will  essentially  restrict  the  consumption  of  the 
article,  either  at  home  or  abroad.* 

*  Should  the  cost  of  producing  cotton  be  greatly  increased  by  the  em- 
ployment of  free,  instead  of  slave  labor,  the  impolicy  of  an  export  duty  will,  on 
the  principle  already  laid  down,  be  quite  obvious. 


CHAP.  XII.]  'STATE  TAXATION.  331 


CHAPTER  XII. 

STATE     TAXATION. 

A  general  valuation  of  all  real  and  personal  property  is 
made  by  the  authority  of  the  State,  according  to  which  all 
State  taxes  are  apportioned  to  each  county,  city,  or  town. 
The  municipal  authorities  then  assess  the  amount  allotted 
them  upon  the  property  and  polls  of  their  constituents, 
together  with  the  amount  required  for  city  or  town  expen- 
ditures. 

Thus  all  taxes,  whether  for  State,  city,  town,  or  school- 
district,  are  direct,  and  laid  wholly  on  property,  except  the 
small  amount  of  poll-taxes.  There  may  be  some  slight 
variation  in  different  States  from  the  course  we  have 
stated  ;  but  it  is  quite  unessential,  and  does  not  materially 
change  the  grand  result. 

The  law  makes  it  the  duty  of  each  person  to  furnish  the 
assessors  annually  a  true  invoice  of  his  estate,  and  to  its 
correctness  he  may  be  required  to  make  oath ;  and,  if  any 
person  neglects  or  refuses  to  make  such  inventory,  the 
assessors  make  one  for  him,  according  to  their  own  judg- 
ment. 

The  rate  of  tax  varies  from  year  to  year,  and  is  widely 
different  in  different  towns  and  cities.  Before  the  Rebellion, 
the  rate  in  Massachusetts  was  seldom  less  than,  sixty  cents, 
or  more  than  one  hundred  on  a  hundred  dollars ;  but  such 
have  been  the  expenditures  caused  by  the  war,  that  few 
now  have  a  rate  less  than  one  hundred,  and  some  have  been 
as  high  as  three  hundred  and  fifty,  cents  on  the  hundred 
dollars. 

This  tax,  if  the  valuation  be  fairly  made,  approximates  to 
justice  and  equality.  It  is  assumed  that  every  man's  ability 
to  pay  is  in  proportion  to  the  property  he  holds ;  that  his 
revenue  corresponds  with  his  wealth.     This  may,  or  may 


332  DISTRIBUTION.    "  [BOOK   IV. 

not,  be  true  ;  and,  as  we  shall  have  occasion  to  show,  there 
are  circumstances  which  disturb,  to  some  extent,  the  equal 
operation  of  this  tax. 

And  here  we  may  notice  some  of  the  objections  to  this 
compound  system  of  poll  and  property  taxation.  Poll-tax 
payers  vote  directly  upon  the  public  appropriations  ;  yet  they 
have  no  personal  interest  whatever  in  the  amount  of  expen- 
ditures. No  matter  whether  a  proposal  to  expend  money  is 
wise  and  necessary,  or  frivolous  and  wasteful,  the  poll-tax 
payer  can  vote  for  it  with  entire  impunity.  It  is  nothing  to 
him  whether  the  sum  be  one  thousand  or  ten  thousand  dol- 
lars. Indeed,  the  influence  of  poll-tax  payers  is  often  in 
favor  of  the  most  lavish  expenditures.  A  new  road,  for 
example,  is  proposed  in  town  meeting.  It  may  be  quite 
unnecessary,  and  ought  not  to  be  made  ;  but  the  poll-tax 
payers,  a  large  share  of  whom  are  laborers,  will  be  immedi- 
ately benefited  by  the  demand  that  will  be  made  for  labor, 
and  will  be  very  likely  to  go  in  favor  of  it.  It  needs  no 
argument  to  show  the  bad  effects  of  such  a  state  of  things, 
regarded  only  in  an  economical  point  of  view.  If  men  may 
vote  away  money  in  the  payment  of  which  they  have  no  in- 
terest, is  it  likely  to  be  done  to  the  advantage  of  the  public 
interests  ?  Is  it  not  certain  that  there  will  be  unwise  and 
reckless  expenditures  ? 

This  false  position  of  the  poll-tax  payer  has  attracted  the 
attention  of  those  who  are  narrowly  watching  the  effects  of 
equality  of  suffrage  without  equality  of  taxation.  The  result 
of  popular  votes  during  the  civil  war,  by  which  immense, 
and  often  quite  unnecessary,  burdens  were  imposed  upon 
towns,  has  caused  no  small  anxiety  amongst  those  who  have 
noticed  the  natural  consequences  of  giving  to  a  class  nu- 
merous and  powerful,  at  the  ballot-box,  the  power  to  impose 
taxes  upon  the  public,  from  which  they  are  themselves 
exempt. 

On  the  other  hand,  the  poll-tax  payer,  while  he  contrib- 
utes heavily  towards  the  national  expenditures  through  cus- 


CHAP.    XII.]  STATE  TAXATION.  333 

tonis  and  excise,  has  no  direct  vote  in  regard  to  them.  He 
can  vote  where  his  own  interest  would  lead  him  to  vote 
wrong,  but  has  no  power  to  vote  directly  where  his  interest 
would  lead  him  to  vote  right. 

The  income-tax  principle,  if  universally  adopted,  while  it 
would  doubtless  relieve  poll-tux  payers  of  their  present  tax- 
ation, would,  at  the  same  time,  bring  their  interests  into 
harmony  with  those  of  property-tax  payers,  and  thus  pro- 
mote the  general  welfare  of  the  public. 

The  poll-tax  is  one  of  the  oldest  and  most  general  of  all 
taxes  imposed  by  State  authority.  In  Massachusetts,  "  every 
male  inhabitant  over  twenty  years  of  age  is  included,  except 
persons  who,  by  reason  of  infirmity  and  poverty,  are,  in  the 
judgment  of  the  assessors,  unable  to  contribute  fully  to  the 
public  charges." 

It  hardly  need  be  said,  that  this  form  of  taxation  is  not  in 
accordance  with  the  maxims  laid  down  by  Adam  Smith ; 
those  who  pay  it  not  having  equal  ability,  or  enjoying  "  an 
equal  revenue."  It  is  a  tax  founded  on  no  sound  principle 
whatever  ;  and,  if  it  were  the  only  tax  imposed,  would  be  as 
unjust  as  a  tax  could  well  be.  It  forms,  however,  only  a 
part  of  a  system  which  must  be  looked  at  in  all  its  bear- 
ings, in  order  to  form  a  correct  judgment  of  the  operation 
of  the  particular  tax,  which  by  law  is  a  limited  one,  deter- 
mined by  State  legislation.  In  Massachusetts,  the  maximum 
poll-tax  is  now  fixed  at  "  not  over  two  dollars,"  but  may  be, 
as  it  has  been,  changed  from  time  to  time.  It  has  never, 
we  believe,  been  higher  than  at  present. 

The  property  and  poll  tax  being  the  two  modes  *  by  which 
all  revenues  are  raised  by  the  individual  States,  we  will  look 

*  States  have,  in  some  cases,  derived  a  revenue  from  a  tax  upon  banks. 
In  Massachusetts,  it  was  for  many  years  the  greatest  source  of  income ;  so 
great,  indeed,  as  to  render  any  direct  State  tax  unnecessary.  Licenses  liave 
also  been  granted,  by  State  authority,  in  some  instances;  but  the  amount 
received  in  any  other  mode,  except  by  direct  taxation,  is  too  small  to  afFect 
essentially  the  public  burdens.  The  establishment  of  the  national-bank  sys- 
tem has  cut  off  bank  taxation  from  the  States  as  a  source  of  revenue. 


33  1  DISTRIBUTION.  [BOOK  IV. 

for  a  moment  at  their  operation  as  between  the  different 
classes  upon  which  they  arc  imposed.  To  do  this,  we  refer 
to  a  valuation  and  tax  list  before  us,  and  find  the  following 
examples. 

B.  H.  —  Buildings  and  45  acres  of  land    .     .    $1,000 

Stock,  &c ^  $1,345.     Taxes,  §15.47 

Poll,  2.00 

$17.47 
T.  G.  —Buildings  and  43  acres  of  land    .    .    $1,500 

Stock 5?  $1,738.    Taxes,  $19.99 

Poll,         2.00 

$21.99 
L.  G.  S.  —  Buildings  and  56  acres  of  land    .    $1,200 

Stock 30°  $1,500.     Taxes,  $17.25 

Poll,  2.00 

$19.25 
Average  property,  $1,528.    Average  tax,  $19.57. 

We  here  find  that  these  small  farmers  pay  119.57  each, 
equal  to  nine  and  a  half  times  as  much  as  the  poll-tax  con- 
tributors. Does  any  one  suppose  that  the  incomes  of  the 
former  are  nine  and  a  half  times  as  great  as  the  latter  ?  Let 
us  test  the  question. 

Suppose  each  of  these  farmers  derives  a  net  income  of  ten 
per  cent  on  his  capital,  over  all  outlays  and  repairs ;  and 
that  his  labor  is  worth  to  him  five  hundred  dollars  per  an- 
num.    This  is  a  large  allowance :  — 

Land  and  stock,  as  above,  at  ten  per  cent $152.80 

His  own  labor  equal  to 500.00 

Total  income $652.80 

Now  we  will  assume  that  the  exclusive  poll-tax  payers 
have  an  average  income  of  four  hundred  dollars.  We  in- 
clude in  this  list  not  only  all  common  laborers,  but  all 
skilled  workmen,  mechanics,  and  others,  whose  labor  is 
worth,  under  a  sound  currency,  $  1.50  to  $2  per  day ;  and 
also  all  clerks,  and  other  employees,  whose  salaries  are  six 
hundred  dollars  and  under.     Then  if  all  these  classes  aver- 


CHAP.  XII.]  STATE  TAXATION.  335 

age  four  hundred  dollars  per  year,  as  no  one  will  dispute, 
it  will  appear  that  the  income  of  the  poll-tax  payers  is 
charged  $2,  while  these  small  property-holders  are  charged 
$19.57. 

Here  is  a  great  disparity,  but  there  is  no  exaggeration  in 
the  statement.  From  the  same  valuation  and  tax  list,  we 
take  three  farmers,  having  about  one  hundred  and  twenty- 
five  acres  each,  with  buildings  and  stock,  and  find  their 
farms  and  stock  average  $3,757 ;  and  their  average  taxes, 
poll  inclusive,  amount  to  $47.03. 

On  the  same  calculation  as  before, — 

Farm  and  stock,  $3,757,  at  ten  per  cent $375.00 

Value  of  farmer's  own  labor 625.00 

Farmer's  total  income $1,000.00 

Then,  if  the  poll  tax-payer  is  charged  $2,  with  an  income 
of  $400,  what  ought  the  farmer  to  pay  with  an  income  of 
$1,000  ?     Answer,  $5. 

Instead,  then,  of  $5,  the  true  proportionate  amount,  the 
farmers,  as  before  shown,  pay  $47.03,  or  more  than  nine 
times  as  much.*  There  is  no  escape  from  these  conclu- 
sions ;  and  we  appeal  with  confidence  to  those  best  qualified 
to  judge,  whether  the  estimate  placed  upon  the  incomes  of 
farmers  of  the  description  we  refer  to  is  not  essentially 
correct.  In  whatever  way  we  look  at  the  matter,  we  cannot 
fail  to  see  great  inequality.  But  the  poll-tax  is  not  only 
unequal  as  between  those  upon  whom  it  is  assessed,  and 
whose  incomes  range  from  $150  to  $600,  and  also  unequal 
as  between  this  class  generally,  and  all  property  holders, 
but  it  is  also  very  disproportionate  to  the  advantages  it 
confers.     Let  us  see  what  these  are. 

1.  Entire  protection  to  persons  and  property. 

2.  Right  of  suffrage,  and  eligibility  to  office. 

3.  The  most  ample  means  of  education  in  common  and 

*  And  the  hardship,  in  this  case,  is  often  increased  by  the  fact  that  the 
farmer  is  indebted  for  a  large  part  of  his  capital,  and  paying  interest  upon  it. 


336  DISTRIBUTION.  [BOOK    IV. 

high  schools,  without  charge,  and  a  chance  for  a  scholarship, 
provided  by  the  State,  in  one  of  the  colleges. 

4.  Complete  maintenance,  and  the  highest  scientific  treat- 
ment, for  life,  if  need  be,  if  himself  or  any  member  of  his 
family  should  be  deaf  and  dumb,  or  afflicted  with  blind- 
ness, idiocy,  insanity,  or,  last  of  all,  helpless  poverty.  What 
individual  or  corporation  could  be  found  to  insure  a  laborer's 
family  against  all  accidents  and  deprivations,  physical  and 
mental,  from  every  source,  through  life,  for  one-half  of  one 
per  cent  on  the  income  of  the  family  head,  or  for  twenty 
times  that  sum  ? 

For  all  this,  and  much  more  that  might  be  added,  the 
recipient  of  a  revenue  from  any  occupation,  trade,  or  profes- 
sion, of  any  sum  not  exceeding  six  hundred  dollars,  if  he 
has  no  visible  property,  pays  an  annual  tax  of  not  over  two 
dollars,  or  four  cents  per  week !  As  we  have  already  said, 
considered  in  itself,  disconnected  from  other  forms  of  taxa- 
tion, this  is  very  unequal,  and  consequently  unjust,  as  be- 
tween the  different  classes.  The  obvious  result  is  to  trans- 
fer an  undue  share  of  the  burdens  of  State,  county,  and  town 
expenditure  from  the  mechanical  and  laboring  classes  to 
the  agricultural ;  thus  promoting  the  interest  of  the  former 
at  the  expense  of  the  latter. 

But  all  this  applies,  it  must  be  remembered,  to  taxes 
imposed  under  State  or  municipal  authority  only,  from  all 
which  the  poll-tax  payer  escapes  entirely  by  paying  two  dol- 
lars. 

Effect  of  the  Two  Systems. — We  are  now  able  to  compare 
the  results  of  the  two  different  systems;  viz.,  national  and 
State  taxation.  In  the  national,  we  find  that  the  greater 
part  of  all  taxes  are  indirect :  the  State  and  municipal 
taxes  are,  with  slight  exceptions,  direct.  The  former  fall 
almost  wholly  on  consumption  ;  the  latter,  upon  property. 
The  first,  is  unjust  to  labor,  or  the  non-property-holding 
classes  :  the  other  is  unjust  to  capital,  or  those  who  hold 
taxable  estate.     One  operates  as   an  offset  to  the  other. 


CHAP.  XII.]  STATE   TAXATION.  337 

Neither  is  just  in  itself,  nor  does  the  action  of  the  two  sys- 
tems conjointly  establish  perfect  justice  ;  but  it  approximates 
as  nearly  to  it,  perhaps,  as  any  other  system  of  taxation 
ever  adopted,  or  likely  at  present  to  be  adopted. 

Before  leaving  the  subject  of  State  taxation,  we  will 
briefly  notice  the  inquiry  often  made,  why  the  United- 
States  government  does  not  assign  to  each  State  its  share 
of  the  public  burdens  according  to  its  general  valuation, 
and  allow  the  State  authorities  to  collect  the  amount  at  the 
same  time,  and  in  the  same  way,  as  all  the  direct  taxes  of 
the  State  are  levied  and  collected.  In  reply  to  this,  it  may 
be  said,  that,  if  the  national  government  could  rely  im- 
plicitly upon  the  fidelity  and  promptness  of  every  State,  it 
would  be  by  far  the  most  economical  and  efficient  mode 
of  collecting  the  revenue.  The  expense  of  collection  would 
be  almost  nominal,  probably  not  exceeding  one-tenth  of  the 
sum  now  required  ;  and  an  army  of  office-holders  might  be 
left  free  to  engage  in  productive  employments.  But  such 
has  been  the  state  of  society  in  some  of  the  States  in  times 
past,  that  reliance  could  not  be  placed  upon  their  promptly 
assessing  and  collecting  a  national  tax ;  nor  can  it  be  ex- 
pected that  the  time  will  soon  come  when  such  a  measure 
would  be  practicable. 

TAXATION    OP    CREDITS. 

It  has  sometimes  been  maintained  that  credits  ought  not 
to  be  taxed,  but  all  assessments  be  made  upon  values,  or 
property,  personal  and  real.  Taxes,  it  has  been  argued, 
ought  not  to  be  laid  upon  persons,  but  upon  that  out  of 
which  they  can  alone  be  paid  ;  viz.,  property. 

But  credits  are  taxed  as  well  as  values.  A  holds  a  farm 
worth  810,000,  mortgaged  to  B  for  $5,000.  A  pays  taxes 
upon  the  whole  valuation,  and  B  upon  $5,000,  as  money  at 
interest.  A,  it  is  said,  is  doubly  taxed.  This  is  a  practical 
question,  that  has  puzzled  legislators  in  every  age  and  coun- 
try.    Let  us  therefore  carefully  examine  it. 

22 


338  DISTRIBUTION.  [BOOK   IV. 

Suppose  A  and  B  aforesaid  form  an  entire  community, 
and  that  the  whole  tax  of  $150  is  imposed  on  property. 
The  whole  valuation  will  then  be  $10,000  (A's  farm),  and 
the  rate  one  and  a  half  per  cent,  which  A  pays,  and  B  goes 
untaxed.  We  will  now  change  the  principle,  and  have  both 
properly  and  credits  taxed.  The  valuation  will  then  be, 
A's  farm,  $10,000,  and  B's  money  at  interest,  $5,000; 
total,  $15,000;  and,  with  the  same  amount  to  be  assessed 
($150),  the  rate  will  be  one  per  cent,  of  which  A  pays 
one  hundred,  and  B  fifty,  dollars.  So,  then,  we  discover 
that  A  is  not  doubly  taxed,  as  assumed,  but  at  the  worst 
pays  only  twenty-five  dollars,  or  one-third,  more  than  his 
share.  Such  must,  in  principle,  be  the  result  of  this  kind 
of  taxation,  taking  a  whole  community  together.  All  the 
amount  taxed  upon  credit  is  so  much  relief  to  taxation 
upon  property.  This  seems  to  be  clear  ;  and  the  justice  of 
the  thing  is  established  by  the  fact  that  A  bought  his  farm 
knowing  that  it  would  be  subject  to  a  full  taxation,  and 
bought  it  cheaper,  as  we  have  shown  in  another  place,  on 
that  account.  B,  on  the  other  hand,  accepted  his  mortgage 
on  the  same  ground,  knowing  it  would  be  subject  to  tax  on 
the  common  valuation.     Is  either  party,  then,  wronged? 

But  perhaps  another  reason  may  be  given  why  A  should 
pay  taxes  upon  the  whole  value  of  his  farm  ;  viz.,  that,  hav- 
ing the  usufruct  of  the  whole,  he  is  entitled  to  all  the  profits 
on  the  farm.  "  But  he  don't  own  the  whole  of  the  farm." 
True,  that  is  his  misfortune:  if  he  did,  he  would  obtain  a 
larger  amount  of  net  profits  ;  but  his  obligation  to  pay  tax 
on  the  whole  is  not  impaired,  because  he  has  the  use  of 
a  part  of  B's  capital.  As  the  owner  of  the  farm,  A  has  a 
chance  for  all  the  profits  that  can  be  made  from  the  whole ; 
while,  by  the  taxation  of  B  on  the  mortgage,  the  former 
saves  a  part  of  what  he  would  otherwise  pay  in  taxes.  One 
pays  taxes  for  the  profits  of  business  ;  the  other,  for  the 
income  on  his  capital. 

In  this  case  we  find  another  very  clear  illustration  of  the 


CHAP.  XII.]  STATE   TAXATION.  339 

correctness  of  the  income-tax  policy.  If  there  were  no  other 
tax  than  upon  income,  the  matter  would  stand  thus  :  — 

A's  income  from  his  farm,  say $900 

Pie  deducts  the  interest  he  pays  B 300 

A  pays  tax  on  his  net  income  of $600 

B's  income  is  taxed  upon 300 

Total  income  to  be  taxed 900 

Amount  to  be  raised,  one  hundred  and  fifty  dollars :  of  this, 
A  will  pay  one  hundred  dollars,  and  B  fifty ;  and  there 
would  be  no  question  as  to  the  justice  of  the  system  by 
which  both  were  thus  taxed.  If  A's  income  should  be 
more  or  less  than  nine  hundred  dollars,  he  -would  pay  more 
or  less,  and  B  must  pay  less  or  more  accordingly. 

In  the  absence  of  the  income-tax  principle,  what  can  be 
more  equitable  and  just  than  the  practice  of  taxing  both 
mortgagor  and  mortgagee  ?  If  the  former  were  allowed  to 
deduct  from  his  inventory  the  amount  he  owed  the  latter, 
it  would  often  happen,  that,  the  mortgagee  not  living  in  the 
same  town  or  State,  so  much  property  would  escape  taxa- 
tion altogether.  This  in  some  communities,  especially  our 
Western  States,  would  be  a  great  evil.  That  much  hard- 
ship may  often  result  from  taxing  credits  as  well  as  prop- 
erty is  undoubtedly  true  ;  but  that  only  affords  additional 
evidence  that  the  income-tax  principle  is  the  only  correct 
one.  Next  to  this  would  be  the  levying  of  all  taxes  upon 
property  exclusively  ;  and  if  adopted  at  the  very  commence- 
ment of  a  social  organization,  as  at  the  landing  at  Plymouth 
in  1620,  it  would  secure  a  just  taxation,  because  all  property 
would  be  created,  held,  and  transferred  under  that  well- 
known  condition. 

TAXATION  OF  GOVERNMENT  BONDS. 

The  question  of  taxing  credits  assumes  great  practical 
importance,  when  regarded  in  relation  to  the  national  debt 


340  DISTRIBUTION.  [BOOK   IV 

of  tho  United  States.  We  will  assume  that  debt  to  be  three 
billion  dollars  ($3,000,000,000).  This  forms  a  lien  or  mort- 
gage upon  the  national  wealth,  which  the  Secretary  of  the 
Treasury,  in  his  report,  December,  1865,  estimates  at  a  little 
over  fourteen  billions  :  for  convenience,  we  will  call  it  fifteen 
billions.  In  that  case,  the  national  debt  will  be  equal  to 
one-fifth  of  the  national  wealth.  On  this  debt  of  three 
billions,  the  interest,  at  six  per  cent,  will  be  one  hundred 
and  eighty  millions.  If  we  suppose  that  all  other  demands 
on  the  Treasury  amount  to  one  hundred  and  twenty  mil- 
lions annually,  we  have  an  aggregate  of  three  hundred 
millions  as  the  amount  of  taxation.  The  national  debt,  if 
included  in  the  national  valuation,  would  increase  it  twenty 
per  cent,  or  from  fifteen  to  eighteen  billions.  This  would 
reduce  the  rate  of  taxation  by  one-sixth,  or  16|  per  cent ; 
that  is,  if  only  property  was  taxed,  the  rate  would  be  two  per 
cent ;  if  property  and  national  stocks,  the  rate  would  be 
1.66. 

Should  the  national  debt  be  exempted  from  taxation,  there 
will  be  one  hundred  and  eighty  millions  of  income  that  will 
go  untaxed  by  State  and  municipal  authority  ;  and  that  is  a 
large  share  of  the  net  income  of  the  entire  people,  or  what 
they  can  save  after  supplying  their  necessary  consumption. 
The  subject,  therefore,  is  one  of  surpassing  interest  to  the 
country.  Quite  fortunately,  however,  the  matter  is  wholly 
within  the  control  of  Congress,  which  can,  as  fast  as  the 
present  bonds  and  other  securities  become  due  (and  they 
may  all  be  redeemed*  within  seven,  and  most  of  them  with- 
in three  years  from  1865),  convert  them  into  bonds  not 
exempted  from  general  taxation. 

Public  faith  should  be  kept  inviolate,  but  public  justice 
should  also  be  secured  as  soon  as  possible.  Better  far  to 
pay  a  high  rate  of  interest,  if  need  be,  than  have  so  large  a 
share  of  individual  income,  and,  consequently,  of  ability  to 
pay  taxes,  escape  its  proper  responsibilities.     This  is  desira- 

*  Except  the  twenty-year  bonds,  which  mature  in  1881. 


CHAP.  XII.]  STATE  TAXATION.  341 

ble,  not  only  as  a  matter  of  policy  in  removing  a  prominent 
cause  of  popular  dissatisfaction  which  may  sooner  or  later 
endanger  the  security  of  the  debt  itself,  but  as  an  economi- 
cal advantage  to  the  country. 

The  effect  of  exempting  the  public  debt  from  taxation  may 
be  illustrated  as  follows :  A  has  an  income  of  one  thousand 
five  hundred  dollars,  derived  from  a  salary ;  B  has  an  equal 
income,  derived  from  coupons  on  the  national  stocks.  A 
must  pay  taxes,  and,  of  course,  must  economize  accordingly : 
B  pays  no  taxes,  and  consequently  has  no  occasion  to  save 
on  that  score.  Now,  as  all  national  capital  comes  from  the 
savings  of  the  people,  it  can  be  seen  at  once,  that,  if  one- 
sixth  part*  (in  amount)  of  the  tax-payers  are  exempted 
from  taxation,  they  are,  to  an  equal  extent,  exempted  from 
all  necessity  of  saving. 

We  are  aware  that  the  holders  of  public  stocks  pay  indi- 
rect taxes  (customs,  excise,  <fec),  but  so  also  does  the  man 
who  has  no  interest  in  the  funds.  What  we  intend  to  say 
is,  that  so  far  as  a  man's  wealth  is  invested  in  untaxed  secu- 
rities, in  so  far  he  has  no  motive  to  save  arising  from  a  taxa- 
tion to  which  all  others  are  liable.  Looking,  then,  at  its 
economical  bearings  merely,  ought  not  all  public  securities 
to  be  included  in  the  general  schedule  of  taxation,  both  by 
the  national  government,  and  the  States,  cities,  and  towns  in 
which  the  holders  reside  ? 

CONSOLIDATION   OF  THE   NATIONAL  DEBT. 

While  this  work  is  passing  through  the  press,  a  proposition 
is  made  in  Congress  to  consolidate  the  debt  of  the  United 
States  into  a  uniform  five  per  cent  stock,  having  thirty  years 
to  run,  payable,  interest  and  principal,  in  gold. 

It  is,  doubtless,  desirable  to  effect  such  a  consolidation, 

*  It  is,  doubtless,  far  more  than  one-sixth  part  of  the  net  national  income, 
probably  at  least  one-fourth,  or  25  per  cent.  A  large  share  of  the  estimated 
fifteen  billions  of  aggregate  wealth  is  of  a  character  to  escape  taxation. 


342  DISTRIBUTION.  [BOOK   IV. 

provided  it  can  be  done  in  an  economical  and  proper  man 
ner ;  but  the  proposal  to  exempt  the  consols  from  taxation 
is  quite  another  matter.  We  have  already  spoken  of  the 
invidious,  as  well  as  unjust,  operation  of  a  system  which 
exempts  from  taxation  one-sixth  part  of  the  national  re- 
sources ;  but,  since  the  proposal  has  been  made,  it  becomes 
desirable,  we  think,  to  give  the  subject  some  further  consid- 
eration. 

We  shall  not  dwell  upon  the  political  bearings  of  a  meas- 
ure sure  to  create  abiding  dissatisfaction ;  sure  to  be  a  most 
dangerous  weapon  in  the  hands  of  political  aspirants,  and 
certain  to  endanger  eventually  the  security  of  the  debt  it- 
self.    We  shall  speak  only  of  its  economic  bearings. 

1st,  The  exemption  of  three  billion  dollars  from  taxa- 
tion for  the  usual  State,  county,  town,  school-district,  and 
parish  purposes,  will  create  a  very  considerable  and  influen- 
tial class  of  20 er sons,  who,  while  they  will  have  the  legal  right 
to  vote  appropriations  for  all  public  objects,  will  be  under  no 
obligation  to  pay  a  farthing  of  the  amount  raised ;  who, 
while  interested  in  having  large  public  improvements  made, 
will  have  no  responsibility  for  the  expense  of  them :  a  class 
to  whom  it  will  be  a  matter  of  entire  indifference  how  large 
the  assessments  may  be,  or  how  unwisely  or  wastefully  the 
public  finances  may  be  conducted.  Can  any  reasonable  man 
think  it  expedient  and  proper  to  create  such  a  class  ?  Does 
any  one  doubt  that  its  influence  would  be  unfavorable  to  the 
public  welfare  ?  We  already  exempt  labor,  to  a  great  ex- 
tent, from  the  burdens  of  State  and  municipal  taxation,  by 
limiting  the  poll-tax  to  a  fixed  and  very  trifling  amount,  so 
that  the  poll-tax  payer  can  vote  any  sum  he  pleases  with 
entire  impunity.  By  exempting  three  billions  of  the  national 
credit  from  taxation,  it  is  now  proposed  to  place  capitalists, 
so  far  as  they  are  owners  of  the  public  stocks,  in  the  same 
favored  position.  The  interest  of  these  two  parties  will  then 
be  identical  in  regard  to  all  public  expenditures  paid  for  by 
a  direct  tax  on  property,  as  State  and  municipal  charges 


CHAP.  XII.]  NATIONAL   TAXATION.  343 

generally  are.  Both  can  vote  away  money,  and  leave  the 
unfortunate  property-holders  to  settle  the  bills.  By  the  ex- 
emption proposed,  government  creates  a  great  antagonism 
in  the  body  politic.  It  grants  a  special  and  most  important 
favor  to  one  class,  at  the  expense  of  others.  It  may  be 
urged,  that  the  favor  has  been  paid  for  by  the  creditors  of 
the  government,  in  that  they  took  the  stock  at  a  less  rate 
of  interest  than  they  would  have  done  had  it  been  subject 
to  taxation.  But  can  government,  with  any  propriety,  make 
any  such  condition  ?  Can  it  rightfully  grant,  for  any  con- 
sideration whatever,  a  dispensation  to  one  class  of  citizens 
from  all  pecuniary  obligation  to  State,  city,  and  town  au- 
thority throughout  the  nation  ?  Surely  not,  consistently 
with  justice  and  equality,  because  in  one  community  the 
favor  granted  may  be  worth  one  per  cent,  in  another  two. 
In  one  locality,  it  may  advance  the  general  valuation  one- 
half;  in  another,  only  one-tenth  :  in  one  municipality,  it  may 
increase  the  general  rate  of  taxation  five  mills  on  the  dollar  ; 
in  another,  twenty. 

Can  that  be  just  and  equal  ?  And  yet  all  taxation,  under 
a  free  government,  must  be  seen  to  be  clearly  impartial  and 
just,  or  the  people  will  not  submit  to  it. 

2d,  Such  an  exemption  will  create  a  powerful  influence 
against  the  payment  of  any  thing  but  the  interest  of  the  debt. 
This  can  be  readily  seen,  and  hence  we  perceive  another  un- 
favorable effect  from  the  proposed  policy.  The  debt  should 
be  paid  off  as  soon  as  practicable.  It  should  not  all  be 
placed  out  of  reach  for  thirty  years,  and  exempted  for  all 
that  time  from  contributing  to  its  own  discharge,  unless  we 
are  prepared  to  resign  ourselves  to  never-ending  taxation 
for  the  payment  of  interest. 

In  a  sectional  point  of  view,  the  exemption  principle  will 
be  very  unequal  in  its  bearings.  In  the  new  States,  where 
capital  is  comparatively  scarce,  and  local  taxation  necessarily 
heavy,  its  operation  will  be  especially  oppressive  and  odious. 
Every  available  dollar  will  be  put  into  government  bonds. 


344  DISTRIBUTION.  [BOOK   IV. 

unless  it  will  command  an  excessive  rate  of  interest  on  indi- 
vidual security.  Will  not  this  enhance  the  rate  of  interest, 
where  capital  is  most  scarce?  If  so,  will  it  not  bo  most 
burdensome  to  those  who  can  least  afford  to  bear  severe 
taxation  and  high  rates  of  interest? 

3d,  A  consideration  is,  that  the  contemplated  exemption 
lias  a  direct  and  powerful  tendency  to  cripple  the  industry 
of  the  country  by  absorbing  a  large  proportion  of  its  wealth 
into  the  debt  of  the  government.  If  the  national  bonds 
should  be  relieved  of  taxation  for  thirty  years,  no  more  wull 
go  abroad  for  sale,  and  those  now  in  Europe  will  be  returned 
upon  us.  Of  that  there  can  be  no  doubt.  The  difference 
occasioned  by  the  exemption  here,  which  does  not  attach  to 
bonds  held  abroad,  will  be  so  great  as  to  insure  their  return 
to  the  American  market.  That  this  will  make  the  working 
capital  of  the  country  scarce  and  high,  and  thus  greatly  in- 
jure all  the  industry  of  the  nation,  especially  that  engaged 
in  manufactures,  is  beyond  a  question. 

The  last  consideration  we  shall  name  is,  that  the  proposed 
measure  is  entirely  unnecessary.  Such  a  policy  should  never 
have  been  entered  upon.  It  was  bad  financiering,  even  in 
the  darkest  hour  of  our  national  struggle,  and  is  wholly 
inexcusable  now. 

But  it  may  be  replied,  "  The  government  cannot  negotiate 
its  loans  at  five  per  cent,  unless  the  exemption  is  made." 
Very  well ;  then  promise  six.  The  rate  of  interest  is  far 
less  essential  than  equality  in  the  taxation  by  which  that 
interest  is  paid.  If  one-sixth  more  interest  is  to  be  pro- 
vided for,  there  will  be  one-sixth  more  property  on  which  to 
assess  the  tax  that  is  to  meet  it ;  the  burden  upon  the  peo- 
ple is  not  increased,  only  equalized. 

The  British  government  pursued  a  wise  financial  policy 
during  its  great  contest  with  Napoleon.  It  consolidated  its 
national  debt,  issued  only  three-per-cents,  and?  negotiated 
these  on  an  average  discount  of  about  forty-one  per  cent. 
Her  exigency  was  great,  but  the  United  States  is  under  no 


CHAP.  XII.]  NATIONAL  TAXATION.  345 

such  extreme  necessity.  If  a  policy  is  adopted  which  com- 
mends itself  to  the  capitalists  of  the  world,  American  consols, 
at  a  low  rate  of  interest,  will,  like  the  British,  command 
money  on  the  most  favorable  terms.  But  there  must  be  no 
tricks,  no  subterfuges,  no  unjust  exemptions,  which  sensible 
men  well  know  are  certain  to  breed  public  discontent,  and 
imperil  the  national  securities.  All  must  be  fair,  honest, 
and  just ;  the  resources  of  the  United  States  are  ample,  and 
rapidly  increasing ;  we  only  need  a  wise  and  faithful  admin- 
istration of  them.* 

We  have  said  there  was  no  necessity  for  the  proposed 
measure ;  but  it  would  be  well  to  decide  fully  and  finally 
upon  the  policy  of  consolidation  into  one  stock,  at  one  rate  of 
interest ;  yet  it  is  in  no  wise  necessary  to  bind  the  govern- 
ment to  issue  the  whole  amount,  as  proposed,  on  thirty 
years.  The  debt  is  not  all  due  at  this  time  :  if  a  part,  say 
one  thousand  millions,  were  now  authorized  for  thirty  years, 
when  that  was  taken  up  the  expediency  of  issuing  more  on 
so  long  a  time  could  be  more  judiciously  decided  upon  than 
at  present ;  besides,  if  only  a  part  were  now  offered,  it  would 
be  taken  with  more  avidity  than  if  the  whole  were  put  at 
once  on  the  market.  Policy,  therefore,  as  well  as  economy, 
requires  a  limitation  of  the  issue  of  thirty  years'  bonds. 

The  proposal  to  save  thirty  millions  per  annum,  by  issu- 
ing bonds  at  five  per  cent,  untaxed,  instead  of  six  per 
cent,  in  order  to  form  a  sinking  fund,  we  regard  as  idle  and 
delusive.  The  project  never  will  be  carried  through.  Na- 
tional sinking  funds  have  always  failed  of  success,  and,  in 
the  nature  of  things,  always  will ;  besides,  if  such  a  fund 
were  to  be  provided  for,  it  could  be  done  more  advanta- 
geously without  exemptions  from  taxation. 

*  Since  the  foregoing  was  written,  Congress  has  laid  a  tax  upon  the  income 
derived  from  the  government  bonds  ;  but  the  same  invidious  exemption  exists 
in  regard  to  all  other  taxation,  and,  as  predicted,  gives  rise  to  much  dissatis- 
faction. 


346  DISTRIBUTION.  [BOOK   IV. 


CHAPTER   XIII. 

FOREIGN   INDEBTEDNESS.  —  I.    ECONOMY   OF    FOREIGN    INDEBTED- 
NESS. 

Pecuniary  obligations,  between  different  nations,  may  be 
of  four  different  kinds  :  — 

1st,  Individual  Indebtedness.-, —  This  can  only  be  of  limited 
and  temporary  duration,  since  it  must  soon  be  paid,  or 
wiped  out  by  insolvency. 

2d,  Corporate  Indebtedness.  —  This  is  of  two  kinds  :  (a)  the 
bonds  or  other  obligations  of  incorporated  companies  formed 
for  industrial  purposes,  the  building  of  railroads,  &c.  ; 
and  (h)  the  bonds  of  municipal  corporations,  cities,  towns, 
and  counties.  These  have  been  issued  to  an  enormous 
extent  in  the  United  States,  and  a  large  amount  have 
been  disposed  of  abroad.  These  two  kinds  of  indebtedness 
are  alike  in  this,  that  they  may  be  enforced  by  law  upon  the 
promisors.  Property  may  be  attached  and  sold,  if  it  can 
be  found  ;  and  as,  in  the  case  of  municipal  corporations, 
there  is  rarely  any  deficiency  in  that  respect,  the  latter  are 
quite  sure  of  ultimate,  if  not  prompt  payment. 

3d,  State  Indebtedness.  —  Nearly  all  the  States  of  the 
American  Union  have  contracted  debts,  and  issued  coupon 
bonds,  which,  to  a  considerable  extent,  have  been  sold 
abroad.  These  rest  upon  a  different  footing  from  the  pre- 
ceding, since  they  cannot  be  enforced  by  any  legal  process. 
They  are  secured  only  by  the  honor  of  the  promisor.  The 
Constitution  of  the  Union  gives  no  authority  to  the  general 
government  to  compel  a  delinquent  State  to  regard  its  obli- 
gations ;  and  no  foreign  power,  if  disposed,  would  be  allowed 
to  enter  the  national  territory.  So  there  is  no  remedy. 
State  indebtedness  abroad  must  amount,  at  the  present  time, 
to  many  millions. 


CHAP.  Xin.]  FOREIGN   INDEBTEDNESS.  347 

4th,  National  Indebtedness.  —  Great  Britain  has  a  debt, 
as  heretofore  stated,  of  eight  hundred  millions  sterling ;  but 
it  is  almost  entirely  held  at  home.  The  rate  of  interest  on 
her  consols  is  only  three  per  cent,  and  there  is  little  induce- 
ment for  capitalists  in  America  to  invest  in  them  ;  but  it  is 
quite  otherwise  with  the  United  States.  Interest  here  is  at 
least  six  per  cent  on  the  best  securities. 

We  may  safely  assume,  that  the  civil  war  has  caused,  or 
will  cause,  the  issue  of  United-States  stocks  to  the  amount 
of  nearly  three  thousand  million  dollars.  According  to 
the  comptroller's  statement,  seven  hundred  millions  of  these 
have  already  gone  abroad ;  and  it  is  certain,  if  the  credit  of 
the  government  is  preserved,  a  large  part  of  the  balance  will 
take  the  same  direction.  Is  this  desirable,  or  otherwise, 
economically  considered  ? 

II.     THE   EXPORTATION   OF    PUBLIC    STOCKS. 

Whether  the  sale  of  such  stocks  abroad  is  desirable  or 
not,  will  depend  entirely  upon  the  character  of  the  commod- 
ities sent  in  return  for  them,  whether  these  be  for  advan- 
tageous or  disadvantageous  consumption ;  and  this  again 
will  depend  upon  the  financial  and  commercial  condition  of 
the  country  from  which  they  are  sent.  Suppose  one  hun- 
dred millions  sent  to  England,  and  returned  in  railroad 
iron,  which,  put  into  use,  pays  a  net  income  of  ten  per  cent, 
besides  facilitating  the  transport  of  cotton  and  wheat,  and 
thus  adding  to  the  national  wealth.  As  these  stocks  pay 
the  American  holders  but  six  per  cent,  and  by  selling  them 
and  investing  the  amount  in  railroads  they  get  ten,  there  is 
a  clear  gain  in  income  of  66|  per  cent.  The  foreigner,  on 
the  other  hand,  who  could  only  get  four  per  cent  for  his 
money  in  home  investments,  now  gets  six,  an  improvement 
upon  his  income  of  fifty  per  cent.  Both  parties  are  benefited. 
On  the  other  hand,  if  the  amount  sold  were  returned  in 
fancy  goods,  jewelry,  &c,  which  increased  the  consumption 
of  luxuries,  but  in    no  way  contributed  to   reproduction, 


348  DISTRIBUTION.  [BOOK   IV. 

the  country  would  in  a  short  time  be  poorer  to  the  whole 
amount.  The  foreigner  would  hold  his  bond,  and  get  his 
interest ;  but  the  American  would  have  nothing  to  show  for 
it.  Or  stocks  may  be  exported  in  payment  for  an  actual 
balance  of  trade.  If,  with  all  our  export  of  commodities 
and  specie,  there  still  remains  an  adverse  balance,  Ameri- 
can stocks  of  one  kind  or  another  may  be  sent  and  sold  to 
adjust  it.  By  this  last  operation,  the  debt  is  merely  "ex- 
tended," or  postponed  ;  and  as  the  interest  upon  this  must 
be  annually  paid,  a  larger  export  of  commodities,  specie,  or 
stocks  must  be  made  in  the  future. 

If  the  foregoing  illustrations  of  the  manner  in  which  a 
foreign  debt  may  be  contracted  are  correct,  as  we  think  will 
not  be  disputed,  the  remaining  question  is,  what  policy 
on  the  part  of  the  United-States  government  could  have 
secured  in  the  past,  or  can  secure  in  the  future,  a  desirable 
return  for  its  bonds  sent  abroad. 

If  all  bonds  were  sold  for  cash,  and  the  specie  sent  in 
return,  the  operation  would  be  simple,  and  its  effects  appar- 
ent ;  but  bonds,  when  sent  abroad,  in  reality  enter  into  the 
exports  of  the  country,  are  negotiated  through  bankers, 
and  their  proceeds  become  "  exchange."  If  a  railroad 
sends  its  bonds  abroad,  the  returns  will  probably  be  in 
the  iron  used  for  its  construction  ;  but,  if  a  city  or  State,  the 
funds  are  to  be  expended  at  home,  and  the  currency  of 
the  country  is  all  that  is  desired  by  the  sellers.  The  bonds 
go  into  the  hands  of  a  banker  or  agent,  who  negotiates 
them  abroad,  and  holds  the  amount  as  foreign  exchange, 
which  he  sells  to  the  merchant,  who  wishes  to  remit  for  pur- 
chases abroad.  As  these  operations  increase  the  quantity 
of  exchange  for  sale,  they  naturally  promote  importations, 
not  of  money,  but  of  merchandise.  And  here  we  must 
ask  pardon  for  again  referring  to  the  hackneyed  theme  of 
an  inflated  currency.  If,  at  the  time  when  bonds  are  thus 
being  sent  abroad,  the  currency  of  the  country  is  expanded, 
prices  generally  advancing,  profits  enlarging,  and  there  is 


CHAP.  XIII.]  FOREIGN   INDEBTEDNESS.  349 

great  inducement  to  extend  trade,  the  importer,  consciously 
or  unconsciously,  is  affected  by  this  state  of  things,  and 
sends  forward  large  orders.  The  consumption  of  foreign 
goods  is  encouraged,  since  they  are  easily  paid  for  (in 
promises),  at  home  and  abroad.  It  will  not  be  surprising 
if  the  consumption  of  the  country  is  thus  increased  to  the 
full  amount  of  the  bonds  sold ;  at  all  events,  there  can  be 
no  doubt  that  it  will  be  increased  to  a  very  considerable 
extent. 

The  fact  that  the  sale  of  these  bonds  has  brought  into 
market  a  large  amount  of  foreign  bills  of  exchange  gives 
the  banks  an  inducement  to  increase  their  discounts,  because 
there  will  be  no  call  for  specie  to  be  sent  abroad,  the  only 
thing  they  ever  seriously  fear.  Thus,  on  every  hand,  facili- 
ties for  expansion  and  additional  consumption  are  multi- 
plied. At  present  (1865),  American  stocks  are  exported 
under  circumstances  absolutely  appalling.  With  gold  at 
forty  per  cent  premium,  foreigners  can  obtain  them  at  71£ 
per  cent ;  that  is,  at  a  discount  of  28-|-  per  cent.  With 
the  amount  so  disposed  of,  merchandise  is  purchased  and 
returned  to  the  United  States,  where  it  is  sold  at  the  ex- 
travagantly inflated  prices  of  a  redundant  credit  currency. 
What  the  consumer  of  the  imported  commodities  is  thus 
taxed,  and  what  the  country  actually  loses,  it  is  neither 
easy  nor  agreeable  to  calculate.  But  such  is  the  condition 
of  our  financial  affairs  at  present ;  and  it  is  quite  likely  to 
continue,  as  no  effectual  measures  are  being  taken  at  the 
present  time  to  contract  the  currency. 

There  are  those  who  advise,  as  a  remedy  for  the  evils  of 
over-importation  under  such  circumstances,  the  imposition 
of  a  very  high  tariff,  so  that  this  influx  of  foreign  goods 
may  be  prevented.  But,  however  disinterested  such  coun- 
sel may  be,  the  remedy  proposed  will  not  meet  the  case. 
We  have  already  proved,  if  we  have  proved  any  thing  in 
this  work,  that  the  quantity  of  currency  is  more  influential 
in  determining  the  amount  of  foreign  importations  than  the 


350  DISTRIBUTION.  [BOOK   IV. 

rate  of  tariff  duties.  While  there  is  a  great  excess  of  cur- 
rency, twice  or  thrice  the  legitimate  amount  required  by 
the  exchanges  of  the  country,  as  at  present,  nothing  short 
of  absolute  prohibition  of  all  trade  will  prevent  importa- 
tions, however  high  the  tariff,  which,  although  it  does  have 
a  tendency  to  reduce  the  consumption  of  foreign  goods, 
may  be  more  than  counterbalanced  by  a  superabundant  cur- 
rency. The  remedy  lies  in  another  direction  ;  viz.,  in  the 
restoration  of  the  currency  to  a  specie  standard.  This,  al- 
though it  should  be  a  gradual  process,  would,  as  soon  as 
it  began,  check  importations  and  increase  exports  ;  the  pre- 
mium on  gold  would  be  reduced ;  and  our  stocks,  when 
sold  abroad,  would  bring  us  in  return  the  full  amount  of 
their  value.  The  process  of  saving  amongst  all  classes 
would  at  once  commence.  Debts,  principal  or  interest,  can 
only  be  paid  by  savings  ;  and  economy  will  begin  when  con- 
traction is  inaugurated. 

With  the  present  inflated  currency,  with  high  prices, 
large  speculative  operations,  and  extraordinary  profits,  the 
idea  of  economy  is  simply  absurd.  Hence  the  great  neces- 
sity of  a  change  of  policy.  No  country  was  ever  being 
more  rapidly  depleted  than  the  United  States  at  the  present 
moment  (1865),  though  the  fact  will  only  bo  realized  when 
the  consummation  of  the  present  disastrous  policy  has  been 
reached. 

FALLACIES  RESPECTING   FOREIGN   INDEBTEDNESS. 

No  sentiment  or  opinion  is  more  common,  perhaps,  among 
the  people,  than  that  it  is  very  undesirable,  or  dangerous 
even,  to  have  the  national  debt  held  abroad.  Is  this  opinion 
well  founded  ? 

1st,  A  debtor  cannot  always  choose  who  his  creditor  shall 
be.  If  deeply  involved,  those  will  hold  his  securities  who 
are  most  able  to  hold  them.  They  will,  like  commodities,  go 
where  they  are  most  wanted,  where  they  will  bring  the 
highest  price. 


CHAP.  XIII.]  FOREIGN   INDEBTEDNESS.  351 

2d,  It  makes  little  difference  to  the  debtor,  if  he  can  meet 
his  obligations  when  due,  who  may  hold  them.  There  is 
no  friendship  in  trade.  Native  or  foreigner  will  alike  de- 
mand his  pay,  when  he  has  a  right  to  do  so. 

If  these  propositions  are  true,  we  see  that  it  is  quite  im- 
possible to  prevent  foreigners  from  purchasing  our  national 
securities,  and  of  little  importance  if  we  could.  It  is  a  great 
misfortune,  that  we  are  deeply  in  debt  as  a  nation.  If  that 
indebtedness  were  wholly  to  our  own  people,  it  would  be 
quite  favorable  ;  for  then,  as  a  people,  we  should  owe  nothing 
at  all,  since  what  was  to  the  debit  of  one  citizen  would  be 
to  the  credit  of  another :  but  if  this  cannot  be,  and  if  capi- 
tal is  worth  more  to  us  than  it  is  to  others,  then  is  it  not 
fortunate  if  others  are  ready  to  loan  us  theirs,  that  is,  are 
ready  to  take  our  public  indebtedness  ?  As  an  admitted 
fact,  the  use  of  capital  is  about  twice  -as  valuable  in  the 
United  States  as  in  England  :  why,  then,  should  we  not 
allow  Englishmen  to  hold  our  public  debt  ? 

We  are  aware  that  there  is  a  deep  prejudice  in  the  public 
mind  against  this.  That  prejudice  has  influenced  the  finan- 
cial action  of  the  government.  When  the  war  of  the  Re- 
bellion broke  out,  and  vast  demands  were  made  upon  the 
national  treasury,  instead  of  looking  abroad  for  capital, 
and  offering  our  loans  in  foreign  markets,  on  favorable 
conditions,  such  a  course  was  officially  denounced  as  de- 
rogatory to  the  American  people.  Foreign  capitalists  were 
actually  snubbed,  if  we  may  use  so  unscientific  a  term.  The 
Confederates  on  the  other  hand,  took  the  wise  precau- 
tion, from  the  outset,  to  establish  their  credit  abroad,  and 
negotiated  loans  as  extensively  as  possible.  This  fact  gave 
strength  to  their  cause,  since  they  soon  built  up  in  Europe 
a  large  pecuniary  interest  in  their  success.  A  foreign  loan 
to  the  United-States  government  of  one  hundred  millions 
in  the  latter  part  of  1861  would  have  saved  the  country 
several  hundred  millions,  inasmuch  as  the  suspension  of 
specie   payments   might  thus   have  been  postponed  for  a 


352  DISTRIBUTION.  [BOOK  IV. 

twelvemonth,  and  perhaps  even  been  avoided  through  the 
war.  By  this  means,  the  prices  of  all  the  government  had 
to  purchase  would  have  been  kept  down  to  the  natural 
standard.  This  measure,  if  accompanied  with  the  expul- 
sion of  all  bank  currency  from  circulation  and  with  the 
issue  of  government  notes  to  take  their  place  so  far  as  de- 
sirable, would,  in  the  end,  have  saved  a  great  part  of  the 
present  national  indebtedness. 

But,  whatever  may  be  true  in  regard  to  the  past,  it  is 
unquestionably  an  object  of  much  importance  to  secure 
foreign  loans  in  the  future  at  a  low  rate  of  interest.  It  is 
not  a  question  whether  we  shall  owe  a  foreign  debt,  for 
that  is  certain  ;  but  whether  we  shall  negotiate  it  abroad  at 
par  at  five  per  cent  in  gold,  or  at  home  at  six  per  cent  in  a 
depreciated  currency.  If  bonds  were  made  payable,  prin- 
cipal and  interest,  at  London,  Paris,  Hamburg,  and  Frank- 
fort, in  the  currency  of  those  places,  and  suitable  efforts 
were  made  to  inform  foreign  capitalists  in  regard  to  the 
resources  of  the  United  States,  there  is  not  the  slightest 
doubt  that  most  advantageous  operations  might  be  made. 

But  this,  we  are  aware,  cannot  be  done  so  advantageously 
now  as  if  we  had  a  sound  currency.  At  present,  we  could 
only  negotiate  at  a  discount  proportionate  to  the  discount 
upon  our  currency  ;  say,  about  thirty  or  forty  per  cent :  but 
even  that  rate  would  be  more  favorable  than  negotiations 
at  home.  No  financial  operations  can  be  made  to  the  best 
advantage  anywhere,  until  the  currency  is  restored  to  a 
specie  basis.  Then  the  credit  of  the  nation  will  be  fully 
established,  and  its  loans  at  five  per  cent  may  be  sold  at  real 
par  ;  that  is,  for  a  currency  equal  to  gold. 

What  the  objections  to  foreign  loans  are,  we  have  never 
heard  stated ;  those  who  have  opposed  such  loans  having, 
so  far  as  we  have  seen,  contented  themselves  with  denuncia- 
tion :  but  the  argument  which  seems  to  be  floating  in  the 
public  mind  is,  that  such  a  debt  will  give  foreigners  an  ad- 
vantage over  us,  since  they  may,  at  any  time,  combine  to 


CHAP.  XIII.]  FOREIGN   INDEBTEDNESS.  353 

send  back  our  bonds,  sell  them  for  what  they  will  bring, 
carry  off  the  specie,  and  throw  our  banks  into  suspension. 
A  frightful  result,  indeed.  But  is  there  any  foundation  for 
such  a  supposition  ?  Do  not  men  act  according  to  their  in- 
terests ?  When  hundreds  of  millions  of  our  stocks  are  held 
abroad,  is  it  likely  that  the  holders  will  "  combine  "  to  send 
all,  or  any  large  amount,  of  them  back,  and  force  a  sale, 
when  they  cannot  do  so  except  at  a  great  loss  to  them- 
selves ? 

W  hat  object  would  be  gained  by  it  ?  What  damage  would 
they  do  us  ?  If  they  sacrificed  their  stocks,  we  should  buy 
them  in  at  great  advantage. 

But  it  may  be  said,  that  they  might  drive  our  banks  into 
suspension.  Possibly  they  might ;  but  what  of  that  ?  The 
banks  are  accustomed  to  it :  it  would  be  nothing  new  or 
uncommon.  Besides,  if  the  stocks  were  held  at  home,  and 
money  became  scarce,  or  the  credit  of  the  government  was 
suspected,  the  public  stocks  would  be  thrown  upon  the 
market  at  once,  and  with  the  same  result.  British  consols 
are  thus  thrown  upon  the  market :  why  not  American 
stocks  ? 

From  whatever  point  of  view  we  may  look  at  the  subject, 
we  find  there  can  be  no  well-founded .  objection  to  the  sale 
of  American  stocks  in  Europe.  On  the  other  hand,  such  a 
sale  of  them  must  be  advantageous,  when  made  under  a  sound 
currency. 

FALLACIES    RESPECTING   A   NATIONAL   DEBT. 

1st,   That  a  national  debt  is  public  wealth. 

"  The  funded  debt  of  the  United  States  is,  in  effect,  the  addition 
of  three  thousand  millions  to  the  realized  wealth  of  the  nation.  .  .  . 
It  is  three  thousand  millions  added  to  its  available  capital."  * 

*  See  pamphlet  issued  by  "  Jay  Cooke,  General  Subscription  Agent  for  the 
Sale  of  Government  Bonds,"  entitled,  "  How  our  National  Debt  may  be  a 
National  Blessing."     Philadelphia,  1865. 

23 


354  DISTRIBUTION.  [BOOK   IV. 

If  this  is  so,  it  is  fortunate,  so  far  as  the  financial  condi- 
tion of  the  country  is  concerned,  that  the  Rebellion  took 
place ;  that  it  continued  so  long,  and  cost  so  much.  Had 
it  lasted  long  enough  to  have  made  the  debt  tenfold  greater 
than  it  now  is,  the  "  available  capital "  of  the  nation  would 
have  been  correspondingly  enlarged  ;  and,  of  course,  its 
power  of  production  so  much  increased.  It  must  be  a  mis- 
fortune, economically  considered,  that  the  war  closed  so 
early.  But  let  us  examine  into  the  truth  of  the  assertion 
that  "  a  national  debt  is  public  wealth." 

How  was  it  created,  and  for  what  ? 
.  It  was  contracted  for  war  expenditures.  The  operation 
was  simply  this :  A  certain  part  of  the  people,  having  the 
ability  to  do  so,  furnished  the  nation  with  the  means  to  carry 
on  the  war.  These  persons  became  the  creditors  of  the 
government,  and  they  now  hold  the  public  stocks.  All  the 
rest  of  the  people  are  debtors,  and  jointly  owe  the  amount 
of  the  debt.  It  is  a  lien  upon  estates,  personal  and  real,  and 
must  remain  so  until  liquidated.  Are  those  who  are  the 
debtors  to  the  bond-holders  any  richer  in  consequence  of  the 
existence  of  the  public  debt  ?  Certainly  not :  they  are  just  so 
much  poorer.  They  must  subtract  from  their  incomes,  each 
year,  so  much  as  they  have  to  pay  for  interest  on  the  na- 
tional debt.  Are  the  bond-holders  any  richer  in  conse- 
quence of  the  creation  of  this  debt  ?  If  they  actually  loaned 
money,  that  is,  coin,  as  some  did  in  1861,  for  which  they  are 
receiving  only  the  usual  rate  of  interest,  they  are  neither 
richer  nor  poorer  for  the  operation.  They  have  got  public, 
instead  of  private,  securities  for  their  funds.  If  they  subse- 
quently loaned  mere  credit  currency,  or  capital  at  prices 
advanced  in  consequence  of  the  depreciation  of  the  currency, 
then,  in  so  far,  they  gained  what  the  government  lost ;  or, 
rather,  what  that  part  of  the  people  lost  who  must  pay  the 
debt  and  interest.  There  was  no  increase  of  wealth  in  con- 
sequence of  the  increase  of  prices,  but  merely  a  transfer  of 
commodities  from  one  party  to  another,  without  an  equiva- 
lent. 


CHAP.  XIII.]  FOREIGN   INDEBTEDNESS.  355 

But  "  the  national  debt  is  public  wealth."  Then  it  fol- 
lows, that,  if  the  national  debt  were  repudiated,  the  nation 
would  be  three  thousand  million  dollars  poorer.  Is  that 
so  ?  Surely  not.  The  holders  of  the  stocks  would  be 
poorer,  doubtless,  by  the  amount  of  their  bonds,  which  enti- 
tle them  to  interest  semi-annually,  and  final  payment  in 
gold;  but  just  what  they  lost  their  debtors  would  gain,  and 
the  general  wealth  of  the  nation  would  not  be  affected  to  the 
amount  of  a  dollar,  except,  that,  in  so  far  as  the  debt  is 
due  to  persons  abroad,  the  repudiation  of  it  would  save  that 
amount  to  the  nation.  Other  than  this,  neither  the  security 
nor  the  insecurity  of  the  national  debt  has  the  least  effect 
in  determining  the  national  wealth. 

2d,  But,  again,  it  is  said  that  "  the  debt  is  active,  available 
capital;  "  and,  in  illustration,  it  is  said  "  that  a  man  having, 
say,  twenty  thousand  dollars  of  the  bonds,  can  engage  in  any 
kind  of  business  at  once,  just  the  same  as  if  he  had  so  much 
cash  capital." 

Now,  what  is  the  fact  ?  The  bonds  being  good  securities, 
the  holder  can  exchange  them  for  cash,  and  with  this  can 
obtain  any  description  of  capital  he  may  need.  The  bonds, 
then,  are  not  capital,  but  only  the  security  upon  which  capi- 
tal may  be  had.  If  the  holder  had  notes  against  individu- 
als of  unquestionable  credit,  he  could  do  the  same.  Are 
private  notes,  then,  capital  ?  Surely  not.  The  man  who, 
having  invested  his  money  or  capital  in  public  securities, 
wishes  to  exchange  them  again  for  capital,  can  do  so  read- 
ily, because  the  nation  is  pledged  to  repayment,  with  inter- 
est. Bonds,  while  the  credit  of  the  government  is  sustained, 
are  only  a  very  convenient  form  of  credit.  They  have  no 
element  of  capital  about  them.  A  thousand  billions  of  them 
would  not  add  a  farthing  to  the  capital  or  wealth  of  a  nation, 
or  increase  the  productiveness  of  any  department  of  indus- 
try. 

So  far  from  aiding  production,  a  national  debt  has  an 
effect    directly   opposite.      It    depresses    industry   by   the 


856  DISTRIBUTION.  [BOOK   IV. 

taxation  it  imposes,  and  reduces  its  power  to  compete 
with  other  countries.  If  a  laborer  pays  fifty  dollars  per 
annum  more  for  the  commodities  he  consumes,  in  conse- 
quence of  taxation  occasioned  by  the  interest  upon  the 
public  debt,  then  he  must  have  fifty  dollars  more  wages,  or 
reduce  his  style  of  living  to  such  an  extent  as  to  save  that 
sum.  If  the  former,  his  higher  wages  will  enhance  the  cost 
of  products,  and  he  will  be  less  able  to  compete  with  the 
foreign  manufacturer  or  producer. 

3d,  The  third  fallacy  is,  that  a  public  debt  gives  stability 
to  government. 

Upon  what  should  the  security  of  a  government  depend  ? 
Evidently  upon  the  convictions  of  the  people  that  it  is  a 
good  government ;  that  it  secures  to  them  life,  liberty,  and 
the  pursuit  of  happiness.  Any  people  who  know  they  have 
such  a  government,  will  need  nothing  to  assure  their  loy- 
alty and  attachment.  Where  government  rests  upon  uni- 
versal suffrage,  the  power  is  wholly  in  the  hands  of  the 
people,  and  no  law  or  constitution  can  have  any  perma- 
nancy,  that  does  not  receive  their  approbation.  Any  thing 
that  is  regarded  as  oppressive  and  unjust  will  certainly  be 
abolished. 

France  has  a  large  national  debt ;  yet  her  government  has 
been  revolutionized  time  and  again,  without  any  reference 
to  that  fact,  and  without  at  all  disturbing  the  security  of 
the  rentes.  National  debts  will  be  paid,  if  the  people 
please  to  pay  them  ;  and  governments  will  be  sustained, 
if  the  people  choose  to  sustain  them. 

But  it  is  said,  that,  since  every  person  who  owns  a  part 
of  the  public  debt  will  be  interested  in  the  permanency  of 
the  government,  all  such  will  certainly  be  loyal ;  and,  as 
these  will  be  in  great  numbers  scattered  over  the  whole 
country,  and  belonging  to  the  most  influential  classes, 
their  social  and  political  co-operation  will  afford  security  to 
our  political  institutions.  Such  reasoning  assumes,  that 
every  man  who  owns  a  certificate  of  stock,  will,  on  that 


CHAP.  Xni.]  FOREIGN   INDEBTEDNESS.  357 

account,  be  loyal  to  the  government.  Let  us  examine  the 
matter.  How  numerous  are  those  bond-holders  who  are 
expected  to  sustain  the  government  and  its  debt  ? 

(1)  There  are  those  who  directly  hold  the  bonds. 

(2)  Those  who  have  stock  in  State  and  national  banks 
whose  capital  is  invested  in  government  securities. 

(8)  Those  who  have  deposits  in  savings  institutions,  the 
funds  of  which  are  largely  invested  in  public  stocks  and 
in  banks,  whose  capital,  as  just  stated,  is  in  the  same  kind 
of  investment. 

These  are  the  classes  on  whom  reliance  is  placed  to  give 
stability  to  government,  in  consequence  of  the  interest  they 
are  supposed  to  have  in  the  public  tranquillity,  as  security 
for  the  national  debt. 

What  the  aggregate  number  of  persons  in  all  these  classes 
may  be,  we  have  no  means  to  determine  ;  but  it  is,  doubt- 
less, much  less  than  most  people  imagine.     For  — 

(a)  Some  seven  hundred  millions  of  the  bonds  are  held 
abroad. 

(J)  Many  millions  are  held  by  aliens  in  this  country. 

(c)  A  large  amount  is  held  by  females. 

((f)  Vast  sums  are  held  by  trustees  and  guardians. 

(g)  Of  the  savings-banks  depositors,  who  are  interested 
to  a  limited  extent,  a  majority,  probably,  have  no  vote. 

(/)  It  is  well  known,  that  the  capital  stock  of  the  cur- 
rency banks  is  held  largely  by  widows  and  orphans. 

(#)  A  large  part  of  the  debt  is  absorbed  by  great  capital- 
ists, holding  $50,000  to  $500,000  each. 

How  many  votes,  then,  can  all  these  parties  give  ?  The 
whole  number  of  voters  in  the  United  States  is  some  five 
millions.  What  portion  of  the  whole  belong  to  the  above 
classes  ?     Certainly  a  very  small  share  indeed. 

But  this  is  not  a  full  view  of  the  case.  Of  those  who  do 
own  stocks,  and  can  vote,  very  few  —  not  one  in  ten,  proba- 
bly —  have  a  sufficient  ownership  to  counterbalance  the 
amount  of  taxation  they  encounter  in  consequence  of  the 


358  DISTRIBUTION.  [BOOK   IV. 

debt.  The  average  amount  to  the  credit  of  each  person  in 
the  savings  banks  of  New  York  and  Massachusetts  is  about 
$225  ;  and  we  may  safely  assume  that  to  be  the  general 
average  throughout  the  country.  Then  it  is  quite  certain 
that  an  immense  majority  have  an  interest  in  the  savings 
banks  of  not  over  $200.  What  is  the  interest  of  all  these 
small  holders,  in  reference  to  repudiation  ? 

For  example,  a  laboring  man,  having  $200  in  bonds  or 
in  a  savings  deposit,  expends  $400  per  annum,  derived 
from  his  wages,  for  articles  required  in  the  support  of  his 
family.  What  amount  of  taxation  will  he  incur  annually, 
in  consequence  of  the  national  debt  ?  Is  it  not  a  very  mod- 
erate estimate,  that  ten  per  cent  of  all  his  expenditures  will 
be  occasioned  by  the  higher  duties,  taxes,  excise,  &c.  Ten 
per  cent  on  $400  is  $40,  which  this  man  must  pay  annually  ; 
while  his  whole  income  from  the  $200  in  bonds,  or  savings- 
bank  deposit,  is  only  $12.  Is  it  for  his  pecuniary  interest 
that  the  public  faith  be  kept  inviolate  ?  If  he  must  pay  $40 
annually,  while  he  gets  but  $12,  how  long  will  it  take  to  use 
up  the  $200  he  has  in  government  bonds  ?  In  less  than 
eight  years,  he  would  have  lost  a  sum  equal  to  the  amount 
of  his  stock,  and  then  be  for  ever  after  liable  to  the  same- 
amount  of  taxation.  Very  clearly,  the  sooner  the  public 
debt  is  repudiated,  the  better  for  this  laborer,  though  hold- 
ing $200  in  the  public  funds. 

We  make  the  same  comparison  in  regard  to  a  man  who 
holds  $1,000  in  stock.  His  income  we  will  suppose  $2,000, 
which  he  expends.  On  the  scale  before  given,  he  will  pay, 
in  increased  prices,  $200,  while  his  coupons  are  but  $(30  per 
annum ;  a  balance  against  him  of  $140.  How  long  will  his 
interest  require  that  the  coupons  be  paid  ?  Clearly,  the 
sooner  they  are  worthless,  and  the  taxation  they  impose 
removed,  the  better.  Another  view  may  be  given,  of  the 
relations  of  the  debt  to  the  population  of  the  country.  It 
may  be  assumed,  that  the  debt  will  be  equal  to  about  $100 
to  each  person,  if  the  population  is  thirty  millions.     Then  a 


CHAP.  XIII.]  FOREIGN   INDEBTEDNESS.  359 

family  of  five  persons  owe  $500  of  the  public  debt,  and,  on 
an  average,  must  pay  the  annual  interest  upon  the  same ; 
say,  from  $30  to  $40.  A  little  reflection  will  satisfy  any 
one,  that  the  number  of  families  that  hold  $500  of  the 
national  bonds,  compared  with  the  whole  number,  must 
be  very  small ;  and,  therefore,  that  a  vast  majority  can  have 
no  pecuniary  interest  in  securing  the  payment  of  the  na- 
tional indebtedness. 

In  these  illustrations,  we  see  the  folly  of  the  assumption 
that  a  public  debt  gives  security  to  government.  Of  all  who 
are  directly  or  indirectly  owners  of  the  public  obligations, 
not  one  in  twenty  has  so  large  an  interest  that  he  would 
not  be  greatly  benefited  by  its  repudiation.  Of  those  who 
vote,  probably  not  one  in  fifty  has  an  interest  in  the  public 
debt  sufficient  to  counterbalance  the  taxation  he  must  en- 
dure in  consequence  of  its  existence.  How  idle,  then,  to 
talk  of  the  stability  a  national  debt  gives  to  a  republican 
government,  under  which  the  will  of  the  people  is  the  su- 
preme law ! 

On  the  other  hand,  who  does  not  see  plainly  that  such  a 
debt,  from  the  necessary  taxation  it  imposes,  must  be  a  con- 
stant source  of  irritation  and  dissatisfaction  ;  that  a  party 
will  inevitably  be  formed  for  its  overthrow,  and  that  in  such 
a  party  will  be  found  sectionalism  and  all  the  bad  and  dan- 
gerous elements  of  society  ?  The  future  peace  and  prosper- 
ity of  the  nation  are  more  endangered  by  the  national  debt 
than  by  all  other  causes.  In  a  country  where  the  people 
have  little  or  no  power  at  the  ballot-box,  a  public  debt  may, 
doubtless,  be  made  an  effective  engine  of  tyranny,  and  con- 
tribute to  the  enslavement  of  the  masses  ;  but  it  is  quite 
otherwise  where  suffrage  is  universal. 

4th,  A  fourth  fallacy  is,  that  a  national  debt  ensures  pro- 
tection to  home  industry,  since  the  heavy  taxation  it  causes 
will,  if  laid  on  foreign  goods,  secure  that  object.  Having 
already  discussed  the  question  of  protection,  we  need  not 
now  enter  upon  it;  but  remark,  that  a  large  national  debt 


360  DISTRIBUTION.  [BOOK   IV. 

does  not  make  it  certain  that  there  will  be  a  high  protective 
tariff.  Croat  Britain  has  the  largest  deht  of  any  nation  in 
the  world;  yet  she  has  abandoned  her  protective  system. 
She  has  become  satisfied  that  such  a  luxury  is  too  great  a 
hinderance  to  her  commercial  prosperity,  too  heavy  a  burden 
upon  her  home  industry;  and  that  she  can  only  compete 
with  other  nations,  in  her  manufactures,  by  maintaining 
freedom  of  trade.  No  nation  has  had  a  larger  experience 
of  the  operation  of  a  severe  protective  system  than  Great 
Britain,  and  in  none  is  it  more  heartily  repudiated. 

5th,  But,  again,  it  is  said  that  a  national  debt  is  desirable, 
as  a  basis  for  a  national  currency.  That  this  is  an  idle 
assumption,  we  have  already  endeavored  to  show.  No  such 
foundation  is  needed  for  any  currency  which  the  good  of  a 
nation  demands.  It  is  a  false  and  pernicious  system  wdiich 
requires  any  connection  with  national  indebtedness.  Debt 
is  no  sound  basis  for  banking.  Banks  should  be  created  to 
loan  capital  that  exists,  not  debt  for  capital  that  has  disap- 
peared. 

We  will  briefly  notice  one  other  fallacy  in  regard  to  a  na- 
tional debt;  viz.,  that  the  generation  which  contracts  it  is 
under  no  obligation  to  pay  it ;  since,  having  been  contracted 
for  the  good  of  the  country,  posterity  ought  to  share,  at 
least,  the  burden  of  it.  "What  is  the  principle  involved  in 
this  statement  ?  Clearly,  that  one  generation  has  the  right 
to  create  a  debt  for  such  purposes,  and  to  such  an  extent,  as 
it  deems  best,  and  impose  on  another  the  payment  of  the 
whole,  or  of  such  part  as  it  does  not  choose  to  discharge  out 
of  its  own  resources.  Can  this  be  true  ?  Does  it  not  follow 
from  this,  that  one  generation  has  the  right  to  enslave  an- 
other, since,  if  it  can  impose  a  tax,  it  can  enslave  ?  lor.  to  the 
extent  of  the  tax,  it  is  slavery,  or  labor  taken  without  com- 
pensation. Suppose  the  tax  carried  to  such  an  extent  as 
to  consume  all  the  products  of  the  laborer  over  that  which 
is  absolutely  necessary  to  existence.  If  the  present  genera- 
tion may  lay  a  tax  of  ten  dollars  on  each  producer  for  all 


CHiP.  Sin.]  FOREIGN   INDEBTEDNESS.  361 

time  to  come,  it  may  lay  one  of  a  hundred  dollars,  or  a  thou- 
sand. If  it  may  take  away  a  fourth  of  a  man's  income,  it 
may  take  a  half,  or  why  not  the  whole  ?  The  right  to  tax 
posterity  at  pleasure  is  the  right  to  establish  a  most  terrific 
despotism ;  and  yet  this  is  one  of  the  popular  sophisms  of 
the  present  day. 

A  slave  is  one  who  does  not  enjoy  the  fruits  of  his  labor, 
further  than  to  preserve  his  efficiency,  and  to  keep  good  the 
number  of  laborers.  It  is  little  matter  in  what  way  this  is 
brought  about,  whether  by  lawless  violence  or  legal  exac- 
tions. The  result  is  the  same.  The  British  laborer  feels 
it,  has  always  felt  it,  and,  so  far  as  we  can  judge  from  the 
present,  always  will.  He  cannot  be  bought  and  sold.  That 
is  chattelism  ;  that  would  convert  him  into  capital :  but  his 
earnings  can  be  taken  from  him  to  pay  interest  upon  debts 
contracted  long  before  he  was  born,  and  for  purposes  that 
all  now  admit  were  useless. 

If  such  is  the  effect  of  the  principle  which  establishes  the 
right  to  entail  upon  posterity  unlimited  indebtedness,  can  it 
be  safe,  economically  considered  ?  Surely  no  man  can  give 
an  affirmative  answer.  "  But  nations  must  sometimes  cre- 
ate debts."     To  this  we  reply, — 

1st,  That  the  occasions  when  nations  are  really  so  com- 
pelled, or  can  rightfully  do  so,  rarely  occur.  The  great 
struggle  through  which  the  United  States  has  just  passed, 
is  one  of  the  strongest  cases  that  has  ever  been  presented ; 
and  yet,  had  the  currency  been  sound  at  the  commencement, 
and  had  a  sufficiently  effective  system  of  taxation  been 
adopted,  there  is  little  doubt  that  the  war  expenditures 
might  have  been  met  as  incurred.  It  is  certain  that  almost 
all  the  service  and  material  was  furnished  by  the  country ; 
and  therefore,  had  the  taxation  been  so  laid  as  to  apportion 
the  amount  judiciously  and  fairly,  the  whole  cost  might 
have  been  provided  for,  and  we  to-day  be  essentially  free 
from  debt.  Without  entering,  however,  upon  this  question, 
we  can  safely  assume  that  the  whole  should  be  paid  off 


362  DISTRIBUTION.  [BOOK   IV. 

within  the  present  century,  which  will  also  be  within  the 
present  generation,  as  a  generation  is  reckoned.  We  are 
told  hy  the  Secretary  of  the  Treasury  (Report,  1865),  that 
two  hundred  millions  paid  annually,  for  principal  and  in- 
terest, will  extinguish  the  debt  within  the  period  named. 
Does  any  one  doubt  the  ability  of  the  people  to  do  this,  if 
they  will  ?     Is  it  not  their  duty,  if  they  can  ? 

Unless  it  is  the  settled  policy  of  the  nation  to  have  a  per- 
manent debt,  it  should  at  once  commence  the  payment,  and 
continue  to  discharge  it  in  a  regular,  systematic  manner ; 
for,  unless  the  work  is  commenced  promptly,  it  will  never 
be  done.  Like  England,  and  other  European  countries,  we 
shall  submit  to  never-ending  taxation  for  mere  interest. 

We  need  not  pursue  the  examination  of  these  fallacies 
further :  indeed,  an  apology  is  demanded  for  noticing  them 
at  all.  And  that  apology  must  be  found  in  the  respectable 
and  semi-official  source  in  which  they  originated.  The 
pamphlet  referred  to  would  be  of  little  consequence,  how- 
ever, were  it  not  for  a  prevalent  popular  delusion,  that, 
somehow  or  other,  a  national  debt  is  real  wealth.  It  is  that 
fallacy  which  we  have  attemptedto  expose. 

In  conclusion,  we  will  only  observe  that  any  people  capa- 
ble of  maintaining  self-government,  and  worthy  of  free  insti- 
tutions, will  need  no  other  bond  of  union  than  their  common 
loyalty ;  no  other  sentiment  than  that  of  honor  and  hon- 
esty, to  induce  them  to  sustain  a  national  debt,  contracted 
in  good  faith  for  the  preservation  of  national  existence. 


CHAPTER  XIV. 

RISE   AND   GROWTH   OF   THE   MODERN   FINANCIAL   SYSTEM. 

No  large  national  debt  has  ever  been  paid,  or  in  any  way 
discharged,  except  by  repudiation.  The  debt  of  the  old 
French   monarchy  was  wiped   out   with    the  "  assignats." 


CHAP.  XIV.]  MODERN   FINANCIAL   SYSTEM.  363 

The  debt  incurred  in  the  American  Revolution  vanished  in 
worthless  "  continental  money."  The  present  debts  of  Eng- 
land, France,  Austria,  and  other  European  countries,  are  so 
large,  the  constantly  increasing  demand  for  more  extensive 
and  costly  armaments  so  pressing,  so  absolutely  overwhelm- 
ing, that  the  hope  of  any  payment  of  the  principal  cannot  be 
reasonably  indulged.  A  national  debt  may  be  regarded, 
under  the  existing  war  policy  of  the  world,  as  a  fixed  insti- 
tution, an  inevitable  appendage  of  government. 

The  United  States,  which,  up  to  the  time  of  the  great 
Rebellion,  formed  the  only  exception  among  the  principal 
nations  of  the  earth,  has  entered  upon  the  same  course. 
That  general  system  of  finance,  of  which  national  indebted- 
ness forms  so  important  a  fact  in  its  influence  upon  the 
industrial  interests  of  mankind,  deserves  a  careful  consid- 
eration. 

When  William  of  Orange  succeeded  to  the  throne  of 
England,  Louis  XIV.,  then  at  the  zenith  of  his  power, 
refused  to  acknowledge  him  as  a  legitimate  monarch,  and 
espoused  the  cause  of  the  exiled  Stuart.  War,  of  course, 
followed.  But  fighting,  in  consequence  of  the  invention  of 
gunpowder,  and  the  changes  it  gradually  introduced  into 
warfare,  had  become  an  expensive  luxury  ;  a  game  which 
kings,  with  their  limited  and  uncertain  revenues,  could  ill 
afford  to  play  at,  particularly  for  a  great  length  of  time. 
War  with  one  so  powerful  as  the  Grand  Monarque  could 
not  be  safely  commenced  or  successfully  prosecuted,  while 
every  penny  must  be  extorted  from  a  reluctant  and  now 
independent  Commons,  and  the  taxes  immediately  assessed 
on  the  large  land  or  other  property  holders  of  the  realm. 

Such  was  the  difficulty  which  King  William  encountered  ; 
but,  fortunately  for  his  fame,  he  was  a  shrewd  financier,  as 
well  as  an  able  soldier.  Up  to  this  time,  England  had  never 
had  a  permanent  organized  national  debt,  a  national  bank, 
or  any  regular  and  reliable  system  of  revenue.  Grants  and 
subsidies  had  been  voted,  from  time  to  time  ;  duties  and  spo- 


364  DISTRIBUTION.  [BOOK  IV. 

cial  taxes  had  been  imposed;  but  these  were  not  to  be 
depended  upon.* 

The  monarch  might  and  did  borrow  money  from  time 
to  time,  in  great  emergencies,  but  on  the  most  disadvan- 
tageous terms.  The  credit  of  the  government  was  always 
low,  because  there  was  no  regularity  or  system  in  the  pub- 
lic finances.  Men  had  no  confidence  in  the  responsibility 
or  punctuality  of  the  government.  William  changed  all 
this.  He  borrowed  for  a  specified  period,  and  promised  the 
punctual  payment  of  the  interest  semi-annually,  and  the  prin- 
cipal when  due ;  and  pledged  "  the  public  funds  "  for  the 
fulfilment  of  his  promises.  Hence  the  public  securities  were 
called  "  the  funds." 

He  negotiated  loans  and  issued  stocks.  He  granted  an- 
nuities, upon  the  payment  of  specific  sums.  Interest  and 
principal  were  secured  by  a  pledge  of  the  public  funds,  or 
revenues  derived  from  various  sources. 

This  put  a  new  face  upon  the  financial  affairs  of  England : 
but  something  further  was  desirable;  viz.,  an  agency  by 
which  the  national  debt  woidd  be  readily  managed,  and  its 
semi-annual  interest  promptly  paid. 

This  was  accomplished  by  the  incorporation  of  a  national 
bank,  consisting  of  the  holders  of  the  public  stocks,  to  the 
amount  of  £1,200,000. 

One  thing  more  was  wanting  ;  viz.,  a  permanent  and  suffi- 
cient income,  to  meet  not  only  the  interest  on  the  accumu- 
lated debt,  but  the  current  expenses  of  the  government, 
already  large,  and  constantly  increasing.  To  effect  this,  a 
land-tax  was  established  ;  small,  indeed,  in  amount,  and 
upon  a  fixed  valuation,  so  that  it  could  not  be  increased  with 
the  increasing  value  of  the  land. 

*  That  this  has  been  disputed,  on  the  authority  of  Mr.  Macaulay,  we  are 
well  aware  ;  but  we  do  not  find  any  thing  in  his  statements  that  contradicts 
our  views  of  the  subject.  Partial  efforts,  more  or  less  successful,  for  the  es 
tablishnient  of  a  thorough  financial  system,  had  already  been  made  in  Eng- 
land, Italy,  and  some  other  countries  of  Europe ;  but  the  great  work  was 
at  length  successfully  inaugurated  during  the  reign  of  William  and  Alary. 


CHAP.  XIV.]  MODERN   FINANCIAL   SYSTEM.  365 

A  system  of  duties  on  all  imports  was  also  enacted,  and 
an  excise  laid  upon  all  home  manufactures  and  products. 
In  short,  a  system  of  indirect  taxation  was  adopted,  far 
more  general  and  effective  than  any  which  had  before 
existed. 

Thus  was  completed  the  grand  triad  of  the  system  of 
finance,  inaugurated  by  the  English  Revolution;  viz., — 


FUNDING,   BANKING,   AND   INDIRECT   TAXATION. 

The  immediate,  as  well  as  ultimate,  results  of  the  new 
system  are  alike  remarkable  and  worthy  our  attention. 

1st,  The  credit  of  the  government  was  now  firmly  estab- 
lished. 

It  could  borrow  more  money,  and  at  a  lower  rate  of  inter- 
est, than  ever  before.  Men  of  small  means  could  now  loan 
money  to  the  government,  and  with  entire  confidence.  The 
whole  community  could  be  laid  under  contribution. 

2d,  Government  was  enabled  to  carry  on  war  by  borrow- 
ing, instead  of  imposing  taxes.  War  could  be  waged  with 
credit,  instead  of  cash.  Parliament  had  only  to  vote  a  loan. 
No  expenditure  need  be  stopped  for  want  of  funds,  while  the 
national  credit  was  unimpaired.  This  was  a  great  change. 
Many  a  war  had  been  abruptly  closed  for  want  of  funds. 
There  was  to  be  no  such  necessity  hereafter. 

3d,  This  course  removed  the  fear  of  immediate  and  press- 
ing taxation  from  the  rich,  because  the  greater  part  was 
now  to  fall  upon  the  masses  of  the  people,  who  pay  taxes, 
not  in  proportion  to  property,  but  to  consumption.  This 
was  an  agreeable  consideration  to  the  wealthy  classes ;  and 
the  more  so,  because,  as  the  public  stocks  were  multiplied, 
better  opportunities  were  afforded  for  investments. 

4th,  Especially  was  the  new  policy  acceptable  to  the  aris- 
tocracy, who,  at  that  time,  even  more  perhaps  than  now, 
monopolized  the  public  offices,  and  whose  revenues  and  pat- 
ronage were  increased  by  governmental  expenditures. 


866  mi  raiBunoH.  [book  iv. 

We  have  said  thai  William  became  involved  in  a  war  with 
France.  Tn  eight  years,  besides  expending  all  he  could 
raise  in  (axes,  he  increased  the  national  debt  from  £1, 200,- 

000  to  £21,500,000.  A  peace  of  five  yeara  followed  Anne's 
accession  (1701),  during  which  five  millions  of  the  debt 
were  paid  off.  Then  came  the  war  of  the  Spanish  succes- 
sion. The  ostensible  object  was  "  to  humble  the  Bourbons, 
and  deprive  Philip  V.  of  his  crown."  This  lasted  eleven 
years,  and  added  £37,500,000  to  the  debt,  besides  consum- 
ing £(5,500,000  raised  in  taxes;  so  that,  at  the  peace  of 
Utrecht,  the  national  debt  was  £54,000,000. 

In  1727,  the  House  of  Hanover  succeeded  to  the  throne, 
in  the  person  of  George  I.,  and  then  came  a  peace  of  twenty- 
six  years ;  but,  in  all  this  time,  the  public  debt  was  reduced 
to  the  extent  of  only  £ 7,500,000.  Why  ?  Because  it  was 
no  object  with  the  ruling  class  to  pay  off  the  debt,  since 
the  national  stocks  had  become  the  most  eligible  investments ; 
so  the  resources  of  the  nation  were  squandered  upon  the 
court.  In  1739,  therefore,  the  debt  was  £46,500,000,  when 
the  war  of  the  Austrian  succession  took  place.  Its  specific 
object  was  to  secure  the  throne  of  Austria  to  Maria  Theresa ; 
and  the  debt  was  carried  up  to  £78,000,000.  Then  came 
eight  years  of  peace ;  but  the  debt  was  reduced  only  three 
millions. 

In  1756  commenced  what  was  known  in  this  country  as 
"  the  old  French  War,"  or  "  the  Seven  Years'  War."  It  was 
caused  by  a  dispute  about  colonial  boundaries,  or,  as  the 
wags  of  those  days  said,  "  about  a  few  acres  of  snow,  in 
Nova  Scotia ; "  but  it  eventually  involved  a  great  part  of 
Europe,  and  the  American  colonies  -of  both  France  and 
England. 

Then  followed  a  peace  of  twelve  years  ;  but  only  £10,500,- 
000  were  paid  off.  The  war  of  the  American  Revolution 
lasted  seven  years,  and  carried  the  debt  up  to  £239,000,000. 
In  the  ten  years  of  peace  and  prosperity  which  followed  that 
great  contest,  the  public  debt  was  reduced  but  £5,000,000, 


Nog 


Rise     art'/    fi/v/r//i     of  the    British      ,  \  "/rtnti/  /)</>/ 

1688    English    Revolution  .  William   and  Mary. 


/////-     ll///l      /////Ail// 


M7 


1711  /////•  //•  the  Spanish 
Succession*. 


17.7) 


/////•  /////    iustria 


1756'    .S'r/v/i    rears    unr    ////A 

France 
176.3 


177.1 


179.1 


iZmencan    //in  luti / // 

Peace. 

// r/r  of  the    French 
///■/  x  luMon 


\8Q2Jiate  of. Jm i /■//, s. 
Ml.V/w  in///    //>i 
fi'rvnrh   Empire 


I8J5 


//;////////  /// 


Get  rgre  // 

GecryreH. 

Get  /'i/r-  //  an '/  /// 


Orr  rr/r  //. 


'i/Ziii/ii  // 


ficlcria 


/.  in  iilirl/ifi/li  li     of   /he     It 'r  \/  -  //u/l&\ 


CHAP.  XIV.]  MODERN   FINANCIAL   SYSTEM.  367 

notwithstanding  that  the  resources  of  England  were  largely 
increased,  and  her  ability  to  reduce  the  national  indebted- 
ness was  ample,  if  the  disposition  to  do  it  had  existed. 

In  1793  began  the  war  that  grew  immediately  out  of  the 
French  Revolution.  This  lasted  for  nine  years,  and  increased 
the  debt  to  £526,000,000.  Then,  in  consequence  of  the 
Treaty  of  Amiens,  a  period  of  one  year's  peace  intervened  ; 
but  it  was  only  an  armed  truce :  military  preparations  were 
continued,  and  the  public  debt  was  increased  £3,000,000. 

In  1803  commenced  the  final  struggle  with  Napoleon, 
which  terminated  in  1815,  leaving  the  British  debt  at 
£805,000,000  sterling.  During  the  twenty  years  following, 
£87,000,000  Avere  paid  off.  This  was  from  necessity,  rather 
than  choice  ;  a  measure  of  policy  adopted  to  secure  the 
credit  of  the  government.  In  1835,  the  debt  was  but  £778,- 
000,000 ;  but  the  emancipation  of  eight  hundred  thousand 
slaves  in  the  West  Indies  added  to  the  debt  £20,000,000. 
It  has  stood  at  £800,000,000,  very  nearly,  ever  since.  We 
give  in  Diagram  No.  8,  inserted  here,  an  illustration  of 
the  facts  as  we  have  stated  them. 

We  have  given  this  history  of  the  rise  and  p  ogress  of 
the  debt  of  Great  Britain,  as  exhibiting  the  natural  effects 
of  such  a  system  as  she  inaugurated  during  the  reign  of 
William  and  Mary.  But  we  have  shown  only  a  part  of  the 
system.  The  history  of  the  national  bank  is  interwoven 
with  that  of  the  national  debt.  It  was  incorporated  in  1697, 
with  a  capital,  as  we  have  said,  of  £1,200,000.  As  the 
public  debt  was  enlarged,  the  capital  of  the  bank  was  in- 
creased ;  that  is,  more  and  mo  e  of  the  debt  was  incorpo- 
rated into  the  bank  organization,  until  it  amounts,  at  the 
present  time,  to  £14,475,000.  This  bank,  as  before  stated, 
has  never  had  a  shilling  of  capital  to  lend  to  the  people ; 
it  has  simply  held  a  certain  amount  of  the  national  stocks, 
and,  upon  the  credit  of  these,  has  issued  its  own  promises 
to  pay  ;  and  these  promises,  having  been  made  a  legal  tender 
by  Parliament,  have  circulated  as  money. 


368  DISTRIBUTION.  [BOOK   IV. 

The  government  lias  no  interest  whatever  in  the  bank,  so 
far  as  its  profits  are  concerned ;  but  it  has  always  stood  by 
it,  sustained  it  by  its  influence  and  legislation,  besides  allow- 
ing a  large  animal  sum  for  its  services,  in  paying  the  divi- 
dends on  the  public  debt.  When  the  bank  was  obliged  to 
suspend  payment,  in  1797,  the  government  came  to  its 
rescue,  by  legalizing  the  act ;  and  the  bank  went  on  issuing 
its  notes  during  the  twenty-three  years  that  followed,  and 
sometimes  to  an  amount  so  excessive,  that  gold  was  carried 
up  to  a  premium  of  twenty-five  to  forty  per  cent:  generally, 
however,  during  this  period,  the  difference  was  small,  —  some 
ten  to  fifteen  per  cent.  The  last  feature  to  be  noticed  in 
this  connection  is  that  system  of  indirect  taxation  which 
became  so  general  and  efficient  under  the  new  financial 
policy.  Duties,  as  we  have  said,  were  laid  upon  every 
description  of  foreign  merchandise,  and  excise  upon  all 
articles  of  home  production.  This  measure  was  indispensa- 
ble to  the  full  development  of  the  system.  When  the 
masses  of  the  people  can  be  taxed  in  such  a  manner  that 
they  are  almost  unconscious  at  the  moment  that  they  are 
taxed  at  all ;  when  the  amount  taken  is  in  very  small  sums, 
so  that,  if  the  fact  were  understood,  it  would  hardly  be 
appreciated  ;  when  the  aggregate  amount  for  a  month  or  a 
year  cannot  be  ascertained,  except  approximately,  and  then 
only  by  long  and  intricate  calculation, — taxation  may  be 
carried  to  its  utmost  possible  limit,  so  far  as  to  leave  to  the 
poorer  classes  only  the  bare  necessaries  of  life.  Such  a 
people  may  feel  that  they  are  very  poor,  but  they  will  regard 
this  as  the  consequence  of  their  low  wages ;  they  may  feel 
that  they  are  oppressed,  but  will  naturally  attribute  it  to 
the  want  of  justice  or  generosity  on  the  part  of  their 
employers.  The  true  cause  of  their  poverty  and  suffering 
they  do  not  perceive.  The  gross  taxes  imposed  in  Great 
Britain  in  1859  amounted  to  seventy-three  millions  sterling, 
equal  to  $14  per  head,  through  the  whole  population,  or  $70 
for  a  family  of  five  persons.     Such  a  taxation,  if  collected  at 


CHAP.  XIV.]  MODERN   FINANCIAL   SYSTEM.  369 

all,  must  be  taken,  as  it  is  taken,  imperceptibly,  as  it  were 
a  penny  at  a  time.  This  grand  system  of  currency  and 
finance,  so  fully  established  in  Great  Britain,  has  at  this 
time  become  th,e  policy  of  all  civilized,  and  to  some  extent 
even  of  uncivilized  countries, — funding,  indirect  taxation, 
paper-money  banking. 

RESULTS  OP    THIS   FINANCIAL   SYSTEM. 

1st,  An  immense  extension  of  the  war  system.  Prior  to  the 
introduction  of  this  policy,  standing  armies  and  armaments 
were  exceedingly  limited.  Now  all  Christendom  is  armed, 
by  land  and  sea.  France  leads  the  van,  with  an  army  of 
some  700,000  ;  and  each  nation  is  struggling  to  create  and 
support  the  largest  possible  military  and  naval  establish- 
ment :  and  all  this  can  be  done  of  credit,  if  need  be ;  there 
is  no  limit  to  these  prepartions,  while  national  credit  holds 
out. 

2d,  Universal  and  constantly  increasing  indebtedness.  This 
is  true  of  nearly  every  country  in  the  world.  England, 
indeed,  has  not  increased  her  debt  for  the  last  thirty  years ; 
but  almost  every  other  government  has  been  borrowing 
money  from  year  to  year,  until  many  of  them  are  as  much 
burdened  by  their  indebtedness  as  England,  because,  in 
proportion  to  their  wealth  and  resources,  they  are  as  deeply 
involved.  France,  we  suppose,  is  really  more  oppressed  by 
taxation  than  England.  France  is  a  great  nation  of  poor 
people,  compared  with  England  or  the  United  States.  She 
has  but  a  small  margin  for  taxation.  The  same,  indeed, 
may  be  said  of  many  other  European  nationalities. 

3d,  Impoverishment  of  the  masses.  This  is  especially 
apparent  in  England.  What  has  become  of  that  yeomanry, 
once  the  pride  of  the  country?  Their  little  estates  have 
disappeared,  have  been  swallowed  up  by  the  terrible  system 
of  taxation  to  which  they  have  been  subjected.  The  pleas- 
ant hedges  which  still  surround  the  small  enclosures,  once 

24 


370  DISTRIBUTION.  [BOOK   IV. 

constituting  the  freeholds  of  her  yeomanry,  may  yet  be 
seen  in  all  parts  of  the  country.  They  are  the  monuments 
of  an  industrious,  brave,  and  independent  class  of  men, 
now  extinct.  These  lands  are  indeed  tilled  by  the  hands  of 
their  descendants,  no  longer  yeomanry,  but  peasants,  almost 
the  paupers  of  the  nation.  How  strikingly  true  this  is,  may 
be  seen  in  the  fact  that  there  are  but  one-third  as  many 
"  holdings  "  at  the  present  time  as  one  hundred  and  fifty 
years  ago,  while  the  wealth  and  population  of  England  have 
doubled  many  times.  How  this  has  been  accomplished, 
may  be  seen  from  statements  made  by  Professor  Levi  of 
the  whole  taxation  of  Great  Britain  for  the  year  1858.* 

Total  Taxation.  Paid  by  the  Upper  Classes.  Middle  Classes.  Working  Classes. 

£73,000,000  £22,550,000  £30,930,000  £20,320,000 

From  this  analysis,  it  appears  that  the  amount  paid  by 
the  middle  and  working  classes  is  equal  to  five-sevenths  of 
the  entire  revenue,  while  those  who  monopolized  the  landed 
estates  of  the  country,  and  an  enormous  proportion  of 
its  public  stocks  and  circulating  capital,  paid  but  two-sev- 
enths. 

We  have  said  that  no  large  national  debt  has  ever  been 
paid  or  discharged,  except  by  repudiation ;  nor  does  it 
appear  that  such  debts  are  likely  ever  to  be  paid,  unless  the 
war  policy  of  the  world  is  changed.  All  have  been  created 
by  war,  and  are  perpetuated  by  constant  demand  for  addi- 
tional armaments. 

The  economy  of  a  national  debt,  under  the  modern 
financial  system,  must  always  impoverish  the  productive 
classes.  Its  entire  influence  on  them  is  oppressive.  It 
deprives  them  of  their  honest  reward,  by  a  false  currency, 
which  robs  them  of  a  large  share  of  their  nominal  wages ; 
it  imposes  upon  them,  through  indirect  taxation,  an  undue 
proportion  of  the  public  burdens,  and  is,  in  fact,  a  stupen- 
dous enginery  for  depressing  them,  though  perhaps  not  so 

*  Levi  on  Taxation,  p.  32,  London  edition. 


CHAP.  XV.]      INHERITANCE  AND  BEQUEST.  371 

intended.  Hitherto  we  have  known  little  of  its  effects  in 
the  United  States.  Until  the  present  time,  we  have  felt 
little  pressure  from  public  indebtedness  and  consequent 
taxation ;  but  the  case  is  now  altered.  We  have  an  im- 
mense debt,  and  a  larger  amount  of  annual  interest  than 
any  other  people  on  the  face  of  the  earth.  Hence  the  great 
importance  of  understanding  the  whole  subject  of  modern 
finance  by  the  people  themselves;  for  without  such  an 
understanding  of  it,  however  much  they  may  suffer,  they 
cannot  hope  for  relief.  They  must  know  the  cause  of  their 
sufferings,  or  they  cannot  apply  the  remedy. 


CHAPTE-R  XV. 

ON   THE   LAWS   OP  INHERITANCE  AND   BEQUEST. 

Men  die,  and  the  property  they  have  acquired  or  held  during 
their  lives  must  pass  into  the  possession  of  others.  May  the 
person  who  is  about  to  leave  the  world  say  to  whom  his 
wealth  shall  immediately  descend  ?  May  he  go  farther,  and 
say  to  whom  it  shall  descend  for  all  coming  time  ?  May 
he  go  farther  still,  and  determine  what  specific  use  shall  be 
made  of  his  wealth  for  ever  ?  Or  shall  the  laws  of  the  State 
decide  the  questions,  — to  whom,  for  what  purposes,  and  for 
how  long,  the  wealth  of  deceased  persons  shall  descend  ? 
Does  the  world  and  its  wealth  belong  to  the  living  or  the 
dead,  or  to  both  in  common  ?  If  to  both,  what  portion 
should  belong  to  each  ?  If  the  dead  are  allowed  to  control 
a  part,  why  not  all  ?  Which  party,  the  living  or  the  dead, 
will  most  intelligently  decide  how  wealth  can  be  advan- 
tageously employed  in  production,  or  in  any  other  mode,  for 
the  benefit  of  the  living  ? 

These  are  the  points  involved  in  the  subject  of  Inheri- 
tance and  the  testamentary  disposal  of  property,  and  aro 


372  DISTRIBUTION.  [BOOK   17. 

important  in  an  economical  point  of  view,  irrespective  of 
all  other  considerations.  These  questions  have  boon  prac- 
tically decided  by  the  laws  and  institutions  of  society  in 
different  ages  and  countries.  Governments  have  always 
interfered  in  regard  to  the  estates  of  deceased  persons,  to 
such  an  extent  as  to  prescribe  limitations  and  conditions. 
So  far  as  these  have  been  in  harmony  with  instincts  of 
humanity,  and  the  laws  of  value,  they  have  been  beneficent 
in  their  operation.  But  all  the  wealth,  all  the  institutions, 
all  the  interests  of  society,  should  ever  be  regarded  as  fully 
under  the  control  of  the  existing  generation  of  men.  This 
should  be  a  fundamental  principle  in  civil  polity  ;  and,  if  law 
may  interfere  in  this  matter  at  all,  it  may  do  so  to  any 
extent  the  public  interest  shall  demand. 

Mr.  McCulloch*  in  his  "  Principles  of  Political  Econ- 
omy" (page  267),  says:  "Every  man  should  have  such  a 
reasonable  power  over  the  disposal  of  his  property  as  may 
be  necessary  to  excite  his  industry,  and  to  inspire  him  with 
a  desire  of  accumulating.  But  if,  in  order  to  carry  this 
principle  to  the  furthest  extent,  individuals  are  allowed  to 
chalk  out  an  endless  series  of  heirs,  and  to  prescribe  the 
conditions  under  which  they  shall  successively  hold  the 
property,  it  would  be  taken  entirely  out  of  the  market ;  it 
might  be  prevented  from  ever  coming  into  the  hands  of 
those  who  would  turn  it  to  the  best  account ;  and  it  could 
neither  be  farmed  nor  managed  in  any  way,  however  advan- 
tageous, that  happened  to  be  inconsistent  with  the  will." 

Mr.  McCulloch  here  recognizes  the  correct  principle ;  viz., 
that  the  interests  of  those  who  are  laboring  and  suffering 
now,  are  paramount  to  the  whims  and  caprices  of  those  who 
have  passed  from  the  stage  of  action ;  in  other  words,  that 
the  earth  belongs  to  the  living,  and  not  to  the  dead.  To 
exhibit  the  enormous  abuses  and  perversions  to  which  these 
mortmain  holdings  must  lead,  we  need  only  refer  to  the  old 

*  Author  of  the  "  Commercial  Dictionary,"  and  one  of  the  best  writers 
of  lils  time  upon  Political  Economy. 


CHAP.  XV.]  INHERITANCE   AND   BEQUEST.  373 

countries  of  Europe,  England  especially,  where  millions  on 
millions  of  wealth  are  held  and  used,  not  for  the  purposes 
originally  intended,  but  often  for  the  very  opposite.  Many 
of  the  objects  for  which  benefactions  are  thus  made,  become 
obsolete  or  absurd ;  yet  the  property  must  be  held  and  mis- 
used, if  really  used  at  all. 

It  has  been  said,  that  nothing  is  more  unwise  than  to 
attempt  to  bind  posterity  with  parchment ;  and,  the  more 
enlightened  the  public  mind  becomes,  the  more  apparent 
will  be  the  utter  folly  of  allowing  the  past  to  govern  the 
present. 

Yet  the  author  just  quoted,  advocates,  with  the  most  sur- 
prising inconsistency,  the  laws  of  primogeniture,  and  makes 
an  argument,  though  a  very  weak  one,  in  favor  of  giving 
the  whole  estate  to  the  oldest  son !  —  an  illustration  of  what 
has  too  often  been  found  in  the  writings  of  English  econo- 
mists, who  seem  generally  to  assume,  in  advance,  that  the 
laws  and  institutions  of  their  own  country  are  right,  and 
therefore  the  laws  of  wealth  must  be  made  to  appear  in 
conformity  with  them.  Mr.  McCulloch  would  probably 
never  have  been  made  a  public  officer,  and  held  a  lucrative 
position  under  government,  if  he  had  taught  the  opposite 
doctrine. 

In  some  countries,  the  laws  have  not  only  provided  for 
the  manner  in  which  wealth  may  be  disposed  of  by  testa- 
mentary provisions,  but  have  often  ordained  that  certain 
estates  shall  be  inalienable.  Thus,  the  landed  property  of  a 
people,  seized  by  violence,  has  been  made  a  perpetual  inher- 
itance to  the  favored  parties  and  their  descendants  for  ever. 
This  class  of  persons  has  often  been  invested  with  the 
powers  of  government ;  and  class  legislation  has  strength- 
ened and  increased  what  force  or  fraud  had  achieved. 

So  far  as  a  class,  more  or  less  strictly  limited,  or  highly 
distinguished,  reaches  a  position  of  property  or  influence 
by  moral  perfections,  by  high  intellectual  endowments,  or 
by  successful  business  operations,  agreeably  to  the  laws  of 


374  DISTRIBUTION.  [BOOK   IV. 

wealth,  and  under  the  test  of  ordinary  competition,  it  is  not 
taken  out  of  the  principles  heretofore  laid  down.  But  so 
far  as  it  has  been  placed  arbitrarily  in  the  possession 
of  large  properties,  and  is  maintained  so  by  thwarting 
the  action  of  natural  laws,  it  is  by  that  removed  from  the 
primitive  rule  of  distribution,  and  requires  to  be  separately 
considered.  We  shall  regard  it  only  from  an  economical 
point  of  view. 

The  nobilities  of  the  world  have,  in  fact,  been  formed 
off-hand,  generally  out  of  the  personal  favorites  of  the 
monarch,  or  distinguished  soldiers,  by  the  grant  of  large 
privileges  and  valuable  estates.  Would  this  perpetuate  a 
nobility  ?  On  the  one  hand,  we  have  the  argument,  a  priori, 
that  the  possession  of  wealth  tends  to  secure  its  own  con- 
tinuance, both  because  possession  is  nine-tenths  of  all  the 
points,  and  because  the  vis  inertice  is  against  a  change ;  that 
the  family  which  has  property  to-day  has  a  better  chance, 
other  things  equal,  to  have  it  next  year  or  next  century, 
than  those  who  have  it  not.  But  other  things  are  far  from 
equal,  which  introduces  the  argument  from  experience;  viz., 
that  estates  tend  to  go  out  of  the  hands  of  any  special 
class.  The  forces  that  scatter  are  stronger  than  those  that 
hold  together.  Outside  is  a  hostility  to  the  individual  ap- 
propriation, that  never  ceases,  arising  out  of  the  desires  of 
the  entire  community  for  that  particular  property.  There 
is  not  a  sentient  being  who  has  not  the  instincts  that  would 
impel  him  to  seize  it  if  he  could.  Within,  to  hold  the  gates 
against  the  assault  of  the  whole  world,  is  the  solitary  pos- 
sessor. His  strength  must  some  time  fail ;  his  vigilance, 
some  time  relax. 

Such,  in  a  figure,  is  the  tendency  of  wealth  to  scatter. 
By  an  order  of  things  in  which  we  can  seem  to  see  great  be- 
nevolence, no  family  or  class  can  secure  the  integrity  of  its 
estate.  Otherwise,  property  would  tend  to  aggregate  itself, 
so  as  to  crush  competition,  and  leave  the  greater  part  of 
the  world  destitute.     As  it  is,  the  foolish  son  dissipates  the 


CHAP.  XV.]  INHERITANCE   AND   BEQUEST.  375 

gatherings  of  the  wise  father,  arid  alienates  the  lands  that 
have  been  annexed,  acre  after  acre,  by  prudence  and  fru- 
gality. A  single  break  in  the  succession  of  industry  and 
economy  will  scatter  the  accumulations  of  ages.  Tim 
liability  of  the  rich  is  the  property  of  the  poor.  Just  as 
surely  as  the  lapse  of  ages  wears  down  the  craggy  moun- 
tain-tops, to  form  the  soil  of  the  humble  valleys,  so  surely 
do  aggregations  of  wealth  gravitate  every  hour  to  the  gen- 
eral level. 

To  contravene  this  provision  of  nature,  the  law  of  the 
land  often  shuts  in  these  estates  by  arbitrary  enactment 
or  judicial  interpretation,  and  so  keeps  out  the  busy,  unre- 
lenting competition,  which  otherwise  would,  sooner  or 
later,  bring  the  proudest  structure  to  the  ground.  All 
such  legal  arrangements  may  be  summed  up  in  — 

THE  LAWS  OF  PRIMOGENITURE  AND  ENTAIL. 

1st,  Of  the  rightfulness  of  such  laws. 

In  the  order  of  nature,  no  man  brings  with  him  into  the 
world  a  store  of  wealth  for  his  subsistence  and  support 
through  life,  or  finds  it  waiting  especially  for  him.  His 
means  of  livelihood  are  to  depend  on  the  inborn  faculties 
of  appropriation,  on  the  store  of  wealth  already  existing 
from  which  these  may  draw,  and  on  the  natural  agencies 
of  production  which  they  may  employ.  But  if  the  latter 
conditions  are  removed,  and  the  man  is  forbidden  access 
to  the  fields  of  labor,  he  is  condemned  to  be  destitute,  in  a 
greater  or  less  degree,  no  matter  how  well  endowed,  or  how 
fully  he  obeys  all  economic  laws.  With  these  open  to  him, 
he  is  certain  of  success.  It  hinders  not  at  all,  that  all  the 
wealth  of  the  world  is  now  taken  up,  that  every  inch  of 
ground  is  possessed.  Though  utterly  without  legal  claim, 
he  is  yet,  in  his  faculties  of  industry  and  appropriation, 
sure  to  become  the  owner  of  some  part  of  it.  at  least  suffi- 
cient for  his  wants. 


376  DISTRIBUTION.  [BOOR   IV. 

Tlio  tiny  tree  pushes  its  way  through  the  matted  sod.  It 
comes  out,  one  little  stem,  two  little  leaves.  The  squirrel 
looks  disdainfully  over  it.  The  ant  can  gnaw  its  trunk. 
Pounds  of  atmospheric  weight  are  already  on  its  fluttering 
expanse.  Yet  it  stands.  The  world  and  the  air  are  now 
absolutely  full,  present  not  one  inch  of  vacant  space.  The 
universe  seems  to  have  no  room  for  the  little  stranger.  Yet 
it  grows.  Simply  confiding  that  the  world  had  need  of  it, 
the  seed  broke  its  shell,  and  crept  upward  to  the  light. 
And  in  the  same  unshrinking  faith  of  a  mission  and  of 
room  that  shall  be  provided,  it  grows,  atom  by  atom,  till  the 
biparted  leaf  has  become  the  giant  tree,  and  takes  its  place 
in  the  crowded  universe,  with  always  room  to  grow,  and 
never  an  inch  to  spare. 

So,  in  the  state  of  nature,  man  enters  on  life,  feeble  and 
destitute,  but  with  powers  of  absorption  and  assimilation 
as  evident  as  those  of  the  tiny  tree.  These,  not  human 
charity  or  human  justice,  award  the  world's  wealth,  and 
sustain  the  lives  for  wise  purposes  created.  But,  if  the  tree 
is  planted  in  a  pot,  its  capacity  of  growth  is  dwarfed  to  the 
dimensions  of  the  place  in  which  it  finds  itself.  It  cannot 
enlarge  ;  not  because  its  vital  germ  is  deficient,  but  because 
it  is  placed  in  a  false  position,  and  deprived  of  natural 
aliment.  If  the  confines  are  too  close,  the  tree  starves  and 
dies. 

This  is  precisely  the  injustice  and  mischief  done  by  laws 
of  primogeniture  and  entail.  So  far  as  they  operate,  they 
shut  off  the  industry  of  the  world  (and  the  wants  which 
that  industry  must  supply)  from  its  proper  field.  We  have 
said  that  the  liability  of  wealth  to  dissipate  is  the  property 
of  the  poor.  It  is  so.  A  man  entering  the  world  may  have 
no  claim  to  any  share  of  its  previous  gains ;  but  he  has  a 
claim  to  a  rl«in<-<'  at  them.  This  is  the  provision  nature  has 
made  for  his  maintenance.  This  is  his  inheritance.  He 
has  a  right,  at  least  as  complete  as  the  plant,  to  get  his 
growth  and  his  support  out  of  the  soil  about  him.     There 


CHAP.  XV.]  INHERITANCE   AND   BEQUEST.  377 

is  nothing  in  this  view  agrarian  or  communistic.  It  admits 
that  property  should  be  sacred  ;  but  it  asserts  that  it  should 
be  alienable.  The  right  of  property  does  not  include  the 
right  of  the  wise  to  get  wealth,  and  of  fools  to  keep  it.  To 
shut  up  any  part  of  the  world,  for  the  benefit  of  one,  is  to 
rob  all  others,  not  of  it,  but  of  their  chance  to  acquire  it 
lawfully.  A  system  of  entail  dwarfs  all  existing  industry, 
so  far  as  it  operates.  It  has  even  proceeded  to  beggar  an 
entire  people.  There  is,  therefore,  no  economic  censure  too 
severe  for  it. 

2d,  But,  besides  the  general  objections  to  such  a  system 
on  the  grounds  of  justice,  we  meet  certain  considerations 
of  expediency  that  deserve  notice. 

(1)  The  capital  thus  kept  together  by  laws  forbidding 
alienation  is  often  so  large  that  it  cannot  be  managed  by 
individuals  for  the  best  economic  advantage.  Of  course,  a 
government  might  provide  for  the  preservation  of  properties 
not  excessive.  But  it  is  not  such  that  have  been  made  per- 
petual ;  and  there  can  be  no  occasion  to  lock  up,  in  this 
way,  moderate  estates.  Great  accumulations  will  be  made 
under  any  free  and  peaceful  government ;  and  it  is  neither 
the  right  of  government,  nor  the  interest  of  society,  to  inter- 
fere to  scatter  them.  The  sacredness  of  property  makes  a 
greater  demand  than  the  mere  productiveness  of  capital. 
Besides,  this  has  been  collected,  and  is  kept  together,  by 
economic  virtues,  which  should  ever  receive  their  natural 
reward.  But  it  is  not  in  the  order  of  things  that  such  moun- 
tains of  wealth  should  remain.  They  will  be  rent  asunder, 
or  worn  away,  in  the  lapse  of  comparatively  few  years. 

Many  reasons  might  be  given  why  wealth,  in  such  aggre- 
gations, is  never  so  efficiently  managed  ;  but  the  assertion 
hardly  requires  proof.  We  find,  in  certain  countries,  exten- 
sive systems  of  polygamy ;  but  it  is  notorious  that  popu- 
lation does  not  advance  as  with  those  people  where  the 
Christian  law  of  marriage  is  observed.  Monopoly  of  wealth 
no  more  tends  to  reproduction  than  monopoly  of  wives.    All 


378  DISTRIBUTION.  [BOOK    IV. 

tins  is  true,  even  if  the  desire  of  increase  remained  the  same  ; 
but, — 

(2)  Such  aggregations  of  wealth  destroy,  in  great  part, 
the  desires  which  lie  at  the  root  of  all  activity.  The  spiiu.^r 
of  industry  is  want.  Let  us  take  into  calculation  the  sum 
of  one  million  of  dollars.  Tt  cannot  be  doubted,  that  this,  as 
a  reproductive  agency,  would  be  quickened  by  more  desires 
if  in  the  hands  of  one  thousand  men,  than  if  in  the  hands 
of  only  one  hundred.  Without  an  attempt  at  mathematical 
accuracy,  it  is  certainly  true  that  the  machinery  of  repro- 
duction would  be  set  in  motion  by  a  deeper  and  broader 
stream  of  human  wants.  It  is  evident,  that  the  impulse  of 
the  mass,  the  one  thousand,  will  be  greater ;  but  it  may  be 
questioned  whether  the  impulse  of  each  one  is  not  greater 
in  the  former  than  in  the  latter  case.  Certainly  the  neces- 
sities of  each  will  be  more  pressing ;  why  not  his  activities 
more  aroused  ?  How  much  mightier,  then,  the  current  of 
energy  with  which  the  greater  body  moves  on  to  its  object ! 

On  the  other  hand,  if  we  suppose  the  sum  to  be  vested  in 
the  possession  of  one  person,  we  shall  have  the  desires 
greatly  weakened.  This  is  not  the  man  who,  "  from  the 
rising  of  the  lark  to  the  lodging  of  the  lamb,"  toils  with 
unrelaxed  nerve  ;  to  whom  every  gain  is  needful  1  »read  ; 
from  whom  every  saving  removes  a  pain. 

Erskine,  as  his  courage  sank  in  dismay  on  his  first  plead- 
ing, seemed  "  to  feel  his  children  pulling  at  his  gown,"  and 
so  took  heart  to  go  on.  Everywhere  it  is  the  hands  of 
the  little  ones,  plucking  at  the  sleeve,  that  elevates  labor 
into  heroism. 

(3)  Such  aggregations  draw  off  an  undue  proportion  ol 
wealth  into  luxuries.  This  is  the  necessary  consequence 
of  what  has  just  been  exhibited;  while  its  own  results  will 
appear  more  specially  in  the  department  of  "  Consumption.*' 
When  the  stern  pressure  of  necessity  is  removed  from 
human  activities,  they  bound  into  a  thousand  sports  and 
caprices. 


CHAP.  XV.]  INHERITANCE   AND   BEQUEST.  379 

(4)  Such  aggregations  of  wealth  often  come  to  men  not 
competent  to  administer  them,  either  in  use  or  enjoyment. 
This  appears  in  the  very  necessity  of  a  law  of  entail. 

Under  a  free  system,  capital  is  sure  to  go  into  the  hands 
best  fitted  to  manage  it  for  the  highest  economic  good.  It 
may  pass  through  strange  experiences,  and  take  on  many 
doubtful  forms ;  but  it  never,  for  a  moment,  escapes  from 
the  grasp  of  economic  laws,  and  must,  at  the  last,  reach 
and  rest  upon  true  economic  desert. 


BOOK   V. 

CONS!    M  PTION. 


CHAPTER  I. 

DIVISIONS   OP  THE   SUBJECT. 

There  is  a  production,  and  there  is  a  destruction,  of  wealth; 
but  the  latter  is  not  the  subject  of  scientific  inquiry.  Its 
phenomena  may,  at  times,  be  prodigious,  terrific ;  its  effects 
may  be  most  baneful  and  grievous  ;  but  there  is  no  philoso- 
phy of  it.  It  is  all  either  unintelligent  or  malicious.  Sci- 
ence is  only  of  what  is  good,  or  may  be  made  good ;  and 
of  what  is  amenable  to  laws,  either  of  human  direction  or  of 
human  comprehension.  The  flood  that  drowns  a  thousand 
farms,  the  storm  that  whelms  a  fleet,  the  earthquake  that 
shakes  a  city  to  the  ground,  are  not  so  important  to  the 
eye  of  philosophy  as  the  difference  between  yesterday's  leaf 
and  to-day's. 

It  is  not,  therefore,  with  wealth,  as  disposed  of  in  destruc- 
tion, but  in  consumption,  that  we  have  to  speak. 

Consumption  is  the  use  of  wealth.  It  is  precisely  the  con- 
verse of  production.  If  production  were,  on  the  one  hand, 
the  creation  of  an  article,  consumption  would  be  its  annihi- 
lation. But  as  human  labor  cannot  bring  one  atom  into 
existence,  so  neither  can  it  return  one  to  nothingness. 
Since  man's  efforts  expend  themselves  in  arranging  matter 
into  certain  desirable  forms,  so  man's  satisfactions  do, 
directly  or  indirectly,  soon  or  late,  exhaust  those  properties 

[380] 


CHAP.  I.]  DIVISIONS   OP  THE   SUBJECT.  381 

or  peculiarities  of  form  that  have  been  imposed  on  matter ; 
and  leave  it,  in  the  act  and  for  the  time,  vacant  of  the  ele- 
ments of  value.  This  result  is  reached  in  the  consumption 
of  wealth. 

There  can  be  no  use  of  wealth,  without  this  change  of 
form ;  while  the  merest  change  of  form  oftentimes  answers 
all  the  conditions  of  consumption.  This  consumption  may 
be  for  any  purpose,  —  for  luxury,  wastefulness,  or  reproduc- 
tion ;  may  be  within  any  time, — from  the  slow  wear  of  the 
precious  metals  to  a  perishing  that  is  almost  simultaneous 
with  the  making ;  may  be  in  any  degree,  —  from  a  total  dis- 
appearance, as  when  wood  is  burned,  to  a  change  which  the 
most  practised  eye  can  hardly  detect. 

In  the  economical  sense,  iron  ore  is  consumed  when  it  is 
wrought  into  chains  and  bars.  These,  again,  are  consumed 
when  they  are  arranged  into  a  bridge,  though  each  may  still 
retain  its  single  shape.  And,  when  the  bridge  has  been 
worn  out  in  time,  it  is  said  to  be  consumed,  though  it  still 
remains  as  an  element  in  all  articles  which  have  received 
value  by  carriage  over  it. 

Each  one  of  these  changes  is  an  act  of  consumption  ;  and 
at  each  the  character  of  the  change  determines  the  new  state, 
and  the  result,  both  in  individual  or  national  wealth.  At 
each,  there  is  an  application  to  a  new  purpose,  and  a  new 
economical  direction  is  imposed. 

While  the  iron  remained  in  bars,  it  was  liable  to  be 
wrought  into  a  bridge,  as  it  was ;  or  into  ploughs,  for  the 
tillage  of  the  earth  :  or  into  weapons,  for  the  destruction  of 
man.  When  it  was  directed  to  one  of  these,  a  new  object 
was  produced:  it  was  consumed;  not  annihilated,  but 
changed  in  its  form  and  purpose.  It  is  evident  thai  the 
effects  on  society  and  on  industry  would  be  vastly  differ- 
ent, as  one  or  the  other  of  these  directions  should  be  taken. 
The  bridge  itself  might  be  used  for  facilitating  commerce, 
or  for  transporting  armies  ;  and,  in  each  case,  the  new  appli- 
cation would  be  a  consumption  of  the  article,  the  new  pro- 


382  CONSUMPTION.  [book  v. 

duct  and  the  new  result  in  wealth  being  determined  in  the 
choice  of  uses  to  which  it  should  be  put. 

The  seed  is  consumed  when  it  is  planted  in  the  ground 
to  bring  forth  one  hundred-fold.  The  cigar  is  consumed 
when  it  goes  off  in  smoke. 

Such  consumption  of  wealth  is  constantly  taking  place  in 
industrial  society ;  and  in  this  light  we  see  the  great  impor- 
tance of  the  principles  which  govern  in  this  department: 
what  momentous  decisions  are  made  at  each  change  of  the 
form  imposed  by  labor  on  matter ;  how  the  wealth  of  the 
world  goes  up  or  down,  with  the  new  direction  given  it. 
Although  such  consumption  comes  far  more  slowly  in  some 
instances  than  in  others,  and  seems  at  times  to  be  indefi- 
nitely delayed,  yet  it  is  true  that  wealth  has  its  generations, 
like  the  race  of  man  ;  that,  in  so  long  a  time,  all  the  present 
accumulations  of  labor  will  have  expended  themselves  ;  and 
that  upon  the  provision  made  for  reproduction  will  depend 
the  condition  of  the  future.  The  world  might  be  stocked 
full  of  useful  and  precious  goods,  yet  become  seedy  in  ten 
years,  and  beggarly  within  the  life  of  man.  And  not  only 
is  the  change  of  form  and  the  new  direction  of  vital  impor- 
tance ;  but  it  is  made  so  frequently,  in  such  multitudinous 
ways,  often  so  silently  and  unobserved,  always  with  so 
much  of  complication  and  uncertainty,  that  the  principles 
which  should  control  it  have  an  interest  at  once,  and  a 
difficulty  beyond  those  which  belong  to  any  other  part  of 
political  economy. 

It  would  be  impossible  to  give  a  catalogue  of  all  the  dis- 
tinct acts  of  consumption  that  take  place  in  the  narrowest 
field  and  in  the  shortest  time.  It  might  be  even  impossi- 
ble to  decide  distinctly  when  any  one  of  them  actually  began 
or  ended ;  so  that,  if  the  science  depended  on  determining 
them  accurately,  we  should  be  forced  to  close  our  inquiries 
at  once,  as  useless.  No  eye  can  detect  their  processes ;  no 
thought  can  reach  down  to  the  real  spring  of  economical 
life.     But  we  can  find  in  the  general  results,  as  they  come 


CHAP,  n.]  MISTAKEN   CONSUMPTION.  383 

out  in  national  or  individual  experience,  enough  for  practical 
instruction  and  guidance. 

We  cannot  see  the  grain  grow,  or  fix  its  daily  increments  ; 
yet  we  know  the  fact  of  its  growth,  and  can  study  the  condi- 
tions of  its  best  development.  So  we  cannot  mark  the  peri- 
ods of  wealth,  or  note  its  phases ;  yet  in  its  great  harvests 
we  can  see  the  kindness  or  unkindness  of  the  soil,  the  re- 
freshing of  the  showers,  or  the  parching  of  the  drouth. 

To  employ  a  figure :  Exchange  and  distribution  form  the 
trunk  of  the  tree,  between  the  two  branching  worlds,  above 
and  below.  Through  that  narrow  compact  body  passes  all 
that  the  intricate  web  of  roots  has  to  give,  the  product  of 
their  silent,  humble  work ;  all  that  the  interlacing  limbs  and 
boughs,  more  fortunate  and  conspicuous,  have  to  spend. 
Below  is  the  world  of  production,  where  myriad  agencies 
appropriate  and  assimilate  the  properties  of  the  soil.  Above 
is  the  world  of  consumption,  where  is  given  off,  in  every 
variety  of  foliage  and  flower  and  fruit,  of  use  and  beauty, 
what  has  been  long  and  patiently  gathered. 

The  consumption  of  wealth  may  be  regarded  as  of  four 
kinds, — mistaken,  luxurious,  public,  and  reproductive.  We 
shall  speak  of  them  in  that  order. 


CHAPTER  II. 

I.     MISTAKEN   CONSUMPTION. 

What  shall  we  do  with  that  large  class  of  industrial  ac- 
tions which  bring  no  reward  to  those  who  perform  them  ? 

We  find  labor  and  capital  applied  with  the  purpose  of 
reproduction,  but  without  result.  And  this  not  occasionally ; 
but  the  share  of  failures  can  almost  be  determined  with 
certainty,  and  is  found  to  bear  no  inconsiderable  proportion 
to  business  enterprise  the  world  over.  Indeed,  in  some 
occupations,  entire  success  forms  the  exception. 


384  CONSUMPTION.  [book  v. 

These  cases  of  mistaken  industry  would  present  very  few 
questions  but  for  the  secondary  uses  to  which  we  sometimes 
find  them  applied.  Gibbon  describes  the  towers,  citadels, 
and  palates  of  Rome  as  built  on  the  foundations  of  the 
ancient  temples,  theatres,  and  arches.  We  can  draw  a 
figure  thence  to  our  modern  industry.  The  fortunes  of  one 
generation  often  rise  from  the  failures  of  that  which  went 
before.  If  we  trace  the  history  of  many  of  the  most 
flourishing  establishments,  we  shall  find  them  resting  at 
last  on  some  great  outlay  of  capital,  or  expenditure  of  labor, 
that  ruined  some  man  or  corporation,  and  finally  went  to 
pay  taxes  or  office  rent.  Such  has  been  the  fate  of  many 
of  the  railroads  of  the  United  States ;  so  much  so,  that  it 
has  passed  into  a  proverb  that  such  stock  must  be  sunk  once 
to  pay  at  all.  A  railroad  is  established,  starts  with  brilliant 
prospects,  and,  after  a  descending  course  for  a  few  years, 
arrives  at  bankruptcy.  Even  so,  when  the  stock  can  be  had 
for  nothing,  it  may  not  pay  for  running,  and  lies  idle,  or 
half  run.  But  perhaps  the  industry  of  the  country  takes 
a  sudden  start,  or  pushes  up  gradually,  finds  the  old  track 
there,  and  demands  that  its  goods  be  carried  to  market. 
The  experiment  is  made ;  and  soon  the  road  is  worked  to  its 
utmost  capacity,  enriching  holders,  who  had  forgotten  the 
existence  of  their  stock. 

The  same  thing  occurs  frequently  in  the  course  of  indi- 
vidual enterprises.  Men  undertake  great  matters,  launch 
into  immense  expenses,  and,  after  sinking  the  full  amount 
of  their  capital  and  credit,  stop  hopelessly.  The  works 
stand  idle  and  melancholy  for  years,  till  some  new  industry 
or  some  shrewder  manager  takes  them  at  half  cost  or  for 
nothing,  and  gets  a  fortune  out  of  them. 

When  one  of  the  later  emperors  would  build  a  monu- 
ment of  his  achievements,  he  was  forced  to  use  fragments 
of  older  architecture ;  and  so,  history  tells  us,  the  head  of 
Trajan  frowned  from  the  arch  of  Constantine.  Many  a 
modern  fortune  is  pieced  out  of  the  wreck  of  earlier 
industry. 


CHAP.  II.]  MISTAKEN   CONSUMPTION.  385 

This,  of  course,  presents  only  the  best  view  of  such  mis- 
taken investments.  There  are  cases  where  industry,  instead 
of  coming  back  to  re-animate  the  lifeless  body  by  sudden 
movements,  forsakes  even  the  habitations  it  has  delighted 
in ;  and  the  machinery  of  to-day  becomes  old-fashioned 
and  useless  under  the  surprising  inventions  of  to-morrow. 
Every  locality  has  its  "  folly,"  named  froin  some  hapless 
adventurer,  who  undertook  more  than  he  could  carry,  and 
which  has  reached  a  death  from  which  there  is  no  resurrec- 
tion. Long  lines  of  railroad  stretch  across  the  country, 
forsaken,  apparently  for  ever,  of  passengers  or  freight. 
Mills  and  factories  stand  tenantless  till  they  crumble. 
These  only  enumerate  the  gigantic  failures  of  industry ; 
while  the  amount  of  labor  and  capital  misapplied  in  ordi- 
nary ways  is  beyond  computation.  The  three  causes  for 
these  industrial  misadventures  are  as  follows :  — 

1st,  Capital  is  fallible  in  its  calculations.  Plausible 
schemes,  based  on  views  that  are  partial  or  temporary,  draw 
even  the  ablest  financiers  into  such  investments.  It  would 
be  out  of  reason  that  such  errors  should  not  be  committed, 
even  with  the  keen  scent  of  personal  advantage  and  trained 
observation. 

2d,  Extravagance  is,  however,  the  prime  cause  of  busi- 
ness failure.  Men,  in  originating  enterprises,  sanguine  in 
feeling,  and  exhilarated  by  the  possession  of  large  capital, 
almost  invariably  indulge  in  a  scale  of  outlay  which  the 
return  does  not  justify.  They  find  it  unpleasant  or  undig- 
nified to  omit  any  thing  from  the  completeness  of  preparation 
out  of  considerations  of  economy.  The  result  is,  that  the 
expense  of  starting  drags  on  them  through  the  whole  course, 
and  perhaps  ruins  them.  They  are  kept  down  all  the  time 
by  the  original  outlay,  and  often  have  to  vacate  their 
magnificent  establishments  for  the  entrance  of  parties  who, 
getting  them  at  half  price,  can  afford  to  keep  and  work 
them. 

3d,  Another  reason  is  found  in  those  accidents  or  great 

25 


386  CONSUMPTION.  [book  v. 

developments  which  transfer  business  from  one  seat  to 
another,  just  as  wells  give  out  with  no  apparent  cause. 
The  axis  of  commerce  shifts  its  place,  and  leaves  tropical 
bones  and  tropical  fruit  high  on  the  northern  hills. 

What  shall  we  do  in  our  discussion  with  such  invest- 
ments of  labor  and  capital  ?  Shall  industry  carry  them  on 
its  books,  like  bad  debts,  in  the  hope  that  something  may 
some  time  come  of  them  ?  Political  economy  here  takes  a 
lesson  from  the  legislation  by  which  obligations  are  out- 
lawed after  a  certain  time,  and  declares  that  wealth,  unpro- 
ductively  applied,  is  not  capital ;  that  it  must  be  struck  out 
of  the  account  of  the  world's  goods,  to  be  reckoned  either 
as  loss  or  luxury.  Whatever,  from  any  cause,  fails  to  rec- 
ompense its  outlay,  though  it  may  still  have  some  utility, 
is  to  be  considered  as  so  much  added  to  the  common 
agencies  of  society.  If  any  thing  comes  out  of  it,  this  is  to 
be  counted  as  so  much  received  from  the  gratuitous  gifts  of 
nature.  Whoever,  by  shrewdness  or  chance,  has  possession 
of  them,  is  fortunate.  A  canal  or  railroad,  whose  stock  has 
been  once  sunk,  stands  in  just  the  same  relation  to  political 
economy  as  do  rivers  and  natural  causeways,  which  facili- 
tate travel,  and  render  production  easy,  but  are  not  capital, 
in  the  scientific  sense  of  the  term. 


CHAPTER  III. 

II.    LUXURIOUS   CONSUMPTION. 

Luxury,  —  what  is  it,  and  what  are  its  effects,  economically 
considered  ?  Noah  Webster  defines  it  as  "  a  free  or 
extravagant  indulgence  in  the  pleasures  of  the  table,  as  in 
rich  wines  and  expensive  diet,  or  delicious  food  and  liquors ; 
voluptuousness  in  the  gratification  of  the  appetites,  or  the 
free  indulgence  in  costly  dress  and  equipage."     We  must 


chap,  in.]  LUXURIOUS  CONSUMPTION.  387 

give  a  far  wider  definition  for  our  purposes,  in  the  science 
of  which  we  treat.  A  fine  house  is  certainly  as  much  a 
luxury  as  fine  clothes  or  costly  wines  ;  so  are  statuary  and 
paintings  ;  so  are  a  vast  number  of  articles  of  common  con- 
sumption in  every  condition  of  life.  It  is  quite  clear,  too, 
that  what  would  be  esteemed  a  great  extravagance  in  the 
royal  establishment  of  Dahomey  would  lie  far  otherwise  in 
the  humblest  dwelling  of  Europe.  The  wigwam  and  the  cot- 
tage exhibit  very  different  phases  of  luxury.  The  loathsome 
poisons  of  "  Gin  Lane  "  are  as  truly  luxuries,  perhaps  in  the 
sense  of  Webster  more  so,  than  the  "rich  wines"  and  "deli- 
cious liquors  "  of  the  palace.  Idleness  is  a  cheap  enjoy- 
ment in  some  spheres  of  life ;  but  many  a  seamstress's  wealth 
cannot  buy  her  the  time  to  weep. 

"  My  tears  must  stop,  for  every  drop 
Hinders  needle  and  thread." 

It  is  apparent  that  a  specific  definition  of  the  term  "  lux- 
ury "  is  impossible  ;  yet  we  can  give  a  general  formula  that 
will  be  sufficient  for  our  purpose.  Luxury  in  the  commu- 
nity is  indulgence  in  those  expenditures  which  are  beyond 
the  reach  of  the  great  mass  of  the  people  :  luxury  in  the 
individual  is  indulgence  in  those  expenditures  which  are 
beyond  the  strict  necessities  of  maintenance,  according  to 
the  customs  of  the  social  or  economic  class  to  which  he 
belongs.  It  is  not  luxury  for  the  ambassador  of  a  nation 
to  pay  thousands  of  dollars  for  a  great  disagreeable  state 
carriage,  if  the  etiquette  of  court  prescribes  it :  it  is  lux- 
ury for  a  laborer  to  pay  five  cents  for  a  ride  to  his  work,  if 
he  could  as  well  walk. 

Of  course,  this  standard  will  vary  in  different  countries, 
the  inhabitants  of  one  being  able  to  command  many  indul- 
gences which  are  denied  to  others.  The  luxuries  of 
Europe  are  daily  fare  in  Asia,  while  articles  of  common  de- 
cency in  an  Irish  hovel  are  unknown  in  the  court  of  Delhi. 
Nor  only  this  :  the  scale  of  luxury  changes  with  every  year. 


388  CONSUMPTION.  [book  v. 

Those  articles  which  in  one  generation  indicate  wealth, 
become  common  property  in  the  next.  This  results  from 
the  general  progress  of  society  and  the  constant  advance  of 
economic  powers.  As  production  rises,  it  covers  the  monu- 
ments of  earlier  taste  or  grandeur. 

The  direction,  too,  of  luxurious  consumption  varies  with 
the  culture  and  the  aspiration  of  those  able  to  indulge  in  it. 
In  one  circle,  it  will  run  to  horses  and  hounds ;  in  another, 
to  paintings  and  statuary  :  some  will  turn  for  enjoyment  to 
architecture ;  others,  to  dress  and  equipage ;  more,  still, 
to  feasting  and  dissipation. 

The  ground  of  luxurious  consumption  is,  perhaps,  best 
determined  by  the  boundaries  of  its  neighbors.  It  embraces 
nothing  that  is  spent  in  the  purpose  of  a  reproduction,  more 
or  less*  immediate  and  direct.  The  necessary  consumption 
of  a  people  depends  chiefly  on  absolute  wants,  is  not  greatly 
a  matter  of  choice,  fancy,  or  taste ;  but  its  luxuries,  those 
things  which  it  may  or  may  not  have,  depend  entirely,  for 
their  kind  and  degree,  upon  moral  and  intellectual  charac- 
teristics. Consequently,  they  furnish  an  index  of  the 
national  civilization. 

1st,  Do  luxuries  directly  encourage  industry  ? 

We  shall  reach  the  truth  of  this  by  illustrations.  When 
William  IV.  came  to  the  throne  of  England,  he  erected  a 
tower  at  one  of  the  entrances  of  the  palace  where  he  made 
his  residence.  It  cost  $500,000.  There  was  no  pretence 
of  utility  whatever  in  the  building.  It  was  pure  luxury.  It 
was  an  elegant  structure.  It  gratified  the  monarch's  taste. 
It  was  highly  ornamental  to  the  castle  and  the  grounds. 
What  was  the  economical  effect  ?  The  erection  gave  em- 
ployment to  mechanics  and  laborers  ;  it  made  a  call  for 
materials  and  architectural  skill ;  it  made  trade  brisk  in  the 
neighborhood.  Was  it  therefore  beneficial  ?  Suppose  it 
had  accorded  more  with  his  majesty's  views  to  take  the 
same  money,  and  with  it  erect  two  hundred  cottages  on  the 
crown  lands,  at  an  expense  of  $2,500  each.     This  would 


CHAP,  in.]  LUXURIOUS  CONSUMPTION.  389 

have  called  for  as  much  labor  and  materials  as  the  tower ; 
would  have  given  as  great  an  impetus  to  trade.  At  the 
same  time,  it  would  have  brought  into  existence  comfortable 
residences  for  the  families  of  two  hundred  laborers.  If  the 
cottages  were  rented  at  a  moderate  rate,  the  income  would 
be  equal  to  a  fair  interest,  and  the  dwellings  would  stand 
for  generations,  a  valuable  property,  conferring  happiness 
and  comfort  on  a  thousand  people. 

But  there  is  more  to  come.  We  said,  "  take  the  same 
money."  What  money  ?  Whose  money  ?  Now,  in  argu- 
ments for  govermental  luxury,  it  is  always  assumed  that 
the  money  is  in  the  treasury.  But  how  came  the  money 
into  the  public  coffers  ?  Who  furnishes  the  money  ?  The 
sober,  steady  industries  of 'the  country.  The  money  to 
make  King  William's  tower  came  from  Leeds  and  Shef- 
field and  Manchester.  It  encouraged  one  class  of  artisans. 
True.  Whom  did  it  discourage  ?  A  class  that  is  always  out 
of  sight  in  such  reckonings,  —  the  class  that  pays  the  taxes. 

Then,  so  far,  it  only  amounts  to  changing  the  capital  of 
the  country  from  one  hand  to  another ;  employing  one  class 
by  turning  off  another ;  a  change  that  is  never  made  with- 
out distress  and  loss. 

There  is  still  more  to  be  said.  If  the  wealth  had  remained 
in  the  hands  of  the  manufacturer,  say,  it  would  have  been 
capital,  and  supported  workmen  this  year.  So  has  the 
tower.  But,  in  the  latter  use,  next  year  it  will  be  no  longer 
reproductive ;  while,  in  cotton-spinning  or  laud-draining,  it 
would  grow  with  every  day,  and  furnish  unfailing  employ- 
ment for  labor.  A  thousand  dollars  spent  in  luxury  will 
pay  a  thousand  dollars  of  wages  (less  certain  little  items). 
A  thousand  dollars  employed  as  capital  will,  in  ten  years,  pay 
twenty  thousand  dollars  of  wages.  Such  is  the  difference 
in  results. 

A  similar  instance  is  that  of  a  man  expending  ten  thou- 
sand dollars  on  an  enlargement  of  his  house  for  purposes 
of  grandeur  or  enjoyment,  or  laying  it  out  in  draining  and 


890  CONSUMPTION.  [BOOK   V. 

improving  fifty  acres  of  land.  In  either  case,  he  pays  a  cer- 
tain amount  of  wages ;  but,  in  the  lattor,  he  lias  added  a 
permanent  value  to  the  country;  increasing  his  own  annual 
income,  and  affording  the  means  of  employing  a  certain 
amount  of  labor  to  the  end  of  time. 

Wealth,  employed  as  capital,  is  an  annuity  made  out  in 
the  name  of  the  laborer,  and  good  for  life. 

There  is  no  possible  case  in  which  the  employment  of 
wealth,  for  purposes  of  luxury,  as  opposed  to  reproduction, 
can  be  said  directly  to  advantage  industry.  It  is  only  the 
fierce  blaze  of  the  burning  house,  at  which  a  few  may  be  for 
a  moment  warmed,  but  which  goes  out,  leaving  desolation 
where  was  habitation  and  home. 

2d,  Do  luxuries  indirectly  encourage  industry  ?  Here  we 
must  turn  sharply  on  our  previous  decision,  and  see  a  fur- 
ther meaning  in  luxurious  consumption  than  first  appeared. 
Unquestionably,  a  wholesome  luxury  is  one  of  the  most  im- 
portant principles  of  production.  What  is  it  that  kindles 
the  desire  of  acquisition ;  that  keeps  the  hand  strong  to 
labor  ?  Is  it  not  the  hope  to  spend  ?  For  what  else,  the 
wretched  miser  excepted,  do  men  toil  early  and  late  ?  It  is 
the  promise  of  future  enjoyments  that  calls  out  half  the  work 
of  the  world.  It  is  this  that  make's  the  difference  between 
nations.  No  man  passes  by  the  abode  of  leisure  and  refine- 
ment without  receiving  an  incitement  to  effort. 

There  is  one  practical  limitation  of  this  principle,  which  is 
of  great  social  and  economical  importance.  It  arises  from 
the  relative  position  of  those  who  do,  and  those  who  as  yet 
cannot,  indulge  in  luxurious  consumption.  If  a  few  are 
very  rich,  and  the  many  very  poor,  the  expenditures  of  the 
former  have  very  little  effect  on  the  condition  of  the  latter. 
Since  these  cannot  aspire  to  the  enjoyment  of  their  superi- 
ors, their  ambition,  instead  of  being  excited,  is  depressed. 
If,  on  the  contrary,  the  interval  between  the  classes  is  nar- 
row, and  the  differences  moderate,  the  luxuries  of  the  rich 
exert  strong  and  increasing  desires  in  those  who  are  less 


CHAP.  III.]  LUXURIOUS   CONSUMPTION.  391 

wealthy.  These  desires  create  wealth.  It  is  not  the  gifts 
of  nature,  nor  the  constraints  of  law,  that  heap  up  the 
stores  of  value.  It  is  the  force  with  which  man  moves  to 
production,  wholly  determined,  as  that  is,  by  his  economic 
desires.  The  luxury  of  European  courts  has  no  elevating 
influence  upon  the  masses  :  quite  otherwise.  Robbed  to  fur- 
nish the  means  of  others,  they  are  hopeless  of  ever  attain- 
ing to  such  fortune  themselves.  But  where  the  grades  of 
society  are  fixed  only  by  differences  of  natural  endowment, 
and  so  are  moderate  and  regular,  rising  by  easy  steps,  the 
entire  population  becomes  inspired  with  the  purpose  of 
reaching  a  higher  position.  In  such  a  state,  the  imagina- 
tion can  hardly  run  ahead  of  wealth. 

We  have,  then,  attained  the  principle,  that  luxurious  con- 
sumption, while  it  directly  gives  no  help  to  industry,  but 
rather  spends  in  one  hour's  enjoyment  the  provision  of 
months  or  years,  may  yet,  by  its  influence  on  man's  desires, 
create  a  productive  force  which  shall  make  its  extravagance 
seem  economy,  its  waste  appear  frugality  itself. 

But  this  is  only  true  of  harmonious,  temperate,  and  well- 
proportioned  luxury.  There  are  indulgences,  great  courses 
of  indulgence,  which,  while  they  excite  momentarily  to  pro- 
duction for  the  means  of  gratification,  do  yet,  by  their  certain 
and  inevitable  effect  on  the  physical  and  mental  powers 
of  the  individual,  by  their  demoralizing  and  perverting  influ- 
ence on  the  community,  prostrate  industry,  and  overturn 
the  foundations  of  the  state.  Many  as  are  the  unfortunate 
possibilities  which  attend  upon  production  and  distribution, 
they  are  all  inferior  in  interest  to  the  momentous  decisions 
of  consumption  ;  and  here  in  luxury,  as  we  find  the  spring 
of  all  beneficent  activity,  we  also  find  the  root  of  all  eco- 
nomic evils.  So  vast  and  so  important  are  the  issues  here 
involved,  that  many  of  them  are  taken  away  from  the  politi- 
cal economist  by  the  statesman  or  the  moralist.  We  do  not 
propose  to  follow  these  principles  into  all  their  results ;  con- 
tent with  only  indicating  their  starting-point  and  direction. 


392  CONSUMPTION.  [book  v. 

Such  is  luxurious  consumption,  in  its  definition  and  its 
general  principles.  We  shall  further  discuss  the  degree  to 
which  it  is,  or  may  be,  carried  in  any  community. 


CHAPTER  IV. 

ON  THE  DEGEEE  OF  LUXURIOUS  CONSUMPTION. 

"We  mistake,  if  we  attribute  luxuries  to  the  rich  alone. 
It  is  estimated,  on  the  best  authority,  that  of  the  taxes  paid 
by  the  laboring  poor  of  England,  out  of  every  twenty-one 
shillings,  eleven  shillings  and  fourpence  were  paid  for  what 
was,  in  the  economic  view,  not  necessary,  and,  in  the 
sanitary  view,  not  beneficial.  If  we  estimate  the  amount 
expended  for  luxuries  by  the  corresponding  class  in  our 
own  country,  we  shall  find  it  as  much  greater  as  nature  is 
more  liberal,  labor  more  free,  taxes  lighter,  and  the  working- 
man  more  ambitious  and  sanguine ;  while,  if  we  turn  to 
France,  we  find  the  proportion  much  smaller;  yet  even 
here  the  laborer  has  his  holiday,  and  his  theatre  or  fair. 

Paradoxical  as  it  may  sound,  it  may  be  said  that  a 
certain  amount  of  luxuries  forms  a  part  of  the  necessary 
wages  of  the  laborer  in  these  countries.  Indeed,  it  is  true 
of  all  countries ;  for  the  human  mind  and  the  human  body 
will  have  rest  and  recreation  in  some  form.  Man  is  not  all 
laborer.  Some  indulgence  is  the  demand  of  that  part  of 
his  nature  which  looks  out  on  another  field  than  produc- 
tion and  accumulation.  And  in  this  light  we  see  the  vast 
importance  of  such  social  and  moral  influences  as  shall 
determine  the  laboring  classes  to  those  relaxations  and 
amusements  which  really  refresh  both  mind  and  body, 
and  elevate  the  whole  tone  of  being.  If  we  mistake  not, 
a  mighty  industrial  revolution,  that  promises  effects  more 
searching  and  permanent  than  many  illustrious  victories  in 
arms,  is  now  being  accomplished  by  the  divergence  in  taste 


CHAP.  IV.]       LUXURIOUS  CONSUMPTION.  393 

and  amusements  of  two  nations.  Great  Britain  has,  thus 
far,  maintained  supremacy  in  useful  and  ponderous  manu- 
factures ;  while  the  artisans  of  France  have  been  almost 
alone  in  the  department  of  elegant  and  delicate  fabrics. 
But  the  signs  are  clear  that  France  is  rapidly  rising  into 
superiority  in  the  former  class  of  industries,  and  may  yet 
attain  the  primacy  throughout  the  world.  The  French 
workman  is  so  economical,  not  only  in  his  personal  habits, 
but,  in  handling  materials  and  tools,  has  such  generally 
correct  and  wholesome  tastes,  and  is  so  simple  in  his  wants, 
that  his  work  is  cheap  as  well  as  efficient.  On  the  contrary, 
the  English  laborer  seeks  more  and  more  the  delusive  relief 
of  strong  and  impure  liquors,  and,  by  this,  adds  so  much  to 
his  expenses,  and  takes  so  much  from  his  power  in  produc- 
tion, as  to  place  him  at  a  real  and  increasing  disadvantage. 
It  hardly  admits  of  question,  that,  if  the  present  causes 
operate  for  twenty  years  to  come,  the  close  of  that  period 
will  find  the  most  mercurial  and  sensitive  people  of  the 
world  enjoying  the  supremacy  of  its  weighty  and  useful 
manufactures. 

National  taste  determines,  in  a  great  measure,  the  de- 
mands of  wages.  It  is  only  required,  by  our  present  ob- 
ject, that  we  take  a  good  look  at  the  luxuries  of  the  poor ; 
not  by  any  means  grudgingly.  Indeed,  we  may  ask  why 
laborers  are  not  everywhere  allowed  more  time  and  means 
for  enjoyment,  outside  the  dull  routine  of  work  and  the  dry 
subsistence  of  life.  It  is  a  wise  and  Christian  statesman- 
ship that  seeks  to  enlarge  the  simple  pleasures  of  the  poor. 
It  is  a  capital  charge  against  despotism  in  every  form,  that 
it  breaks  down  the  power  of  the  humbler  classes,  to  claim 
them.  As  the  intelligence  of  laborers  increases,  and  their 
political  franchises  extend,  they  will  assert  a  larger  share 
of  the  products  of  industry ;  and  very  much  of  this  will  go 
into  what  we  call,  not  invidiously,  luxuries. 

But  it  is  with  regard  to  the  richer  classes  that  the  ques- 
tion of  luxuries  becomes  especially  important.     The  amount 


394  CONSUMPTION.  [book  v. 

of  wealth   directed  to  these  objects   can  hardly   be  over- 
estimated. 

The  excise  and  customs  authorities  of  Great  Britain  re- 
cently made  an  attempt  to  ascertain  the  shares  of  certain 
articles  consumed,  severally,  by  three  classes  into  which 
they  divided  the  population  of  the  kingdom.  The  result  is 
shown  in  the  following  table :  *  — 


Class. 

Persons. 

Tea  consumed. 

Sugar  consumed, 

1st,  Upper  . 

.     1,000,000 

17£  per  cent. 

22  \  per  cent. 

2d,  Middle 

.     9,000,000 

38 

38 

3d,  Lower  . 

.  18,000,000 

44£        „ 

39£        „ 

28,000,000 

100 

100 

In  these  simple  articles,  which  are  almost  included  in 
the  strict  necessaries  of  life,  we  see  the  great  excess  of  the 
expenditure  of  the  upper  classes.  When  we  rise  to  take  in 
services  of  plate  and  sets  of  jewelry,  galleries  of  pictures 
and  parks  of  deer,  studs  of  horses  and  packs  of  hounds,  we 
shall  be  impressed  with  the  immensity  of  outlay  devoted  to 
the  luxuries  of  society. 

We  are  not  surprised  to  hear  that  at  Rome  "  almost  any 
profession,  either  liberal  or  mechanical,  might  be  found 
in  the  household  of  an  opulent  senator ; "  f  that  one 
thousand  barbers,  one  thousand  cooks,  and  one  thousand 
cup-bearers  were  employed  in  the  imperial  service  of  Con- 
stantinople, while  the  chief  cook  had  a  retinue  of  twenty 
menials ;  that  the  baggage  of  a  Persian  monarch  was 
carried  by  twenty  thousand  camels,  even  in  campaign ;  that 
Zingis  Khan  maintained  seven  thousand  huntsmen  and 
seven  thousand  falconers ;  that  the  revenue  of  two  thousand 
villages  supported  the  temple  of  Sournat;  that  four  cities 
were  allowed  for  the  personal  expenses  of  the  dogs  of  a 
royal  establishment ;  %   that   the   household  of  Philip   II. 

*  Levi  on  Taxation.  t  Gibbon. 

t  The  poodle  of  the  Empress  Livia  seems  to  have  been  neglected.  If  the 
authorities  may  be  accepted,  it  enjoyed  the  entire  services  of  only  one  man. 
—  Gibbon,  ch.  49,  n.  155. 


CHAP.  IV.]  LUXURIOUS  CONSUMPTION.  395 

numbered  one  thousand  five  hundred,  while  the  queen  was 
attended  by  four  physicians. 

Nor  was  the  luxury  of  those  times  of  barbarous  might 
greater  than  that  of  to-day.  An  easy  walk  with  any  people, 
whether  in  city  or  country,  will  afford  contrasts  as  striking 
and  painful  as  that  between  the  palaces  of  Susa  and  the 
corners  into  which  the  common  people  crept  for  sleep; 
between  the  mansions  on  the  Quirinal  and  the  holes  in 
which  "  Rome's  rats  "  hid  their  wretched  lives. 

1st,  What  are  the  causes  that  set  wealth  apart  for 
luxury  ? 

(a)  The  most  essential  is  the  existence  of  a  surplus. 
Other  things  equal,  the  degree  of  luxury  will  be  as  the 
surplus.  The  latter,  however,  will  depend  not  so  much  on 
the  general  mass  of  wealth  as  on  its  apportionment  among 
producers. 

(F)  The  desire  to  gain  and  the  desire  to  spend  are 
antagonistic.  They  meet  in  every  act  of  life,  and  one  or 
the  other  must  have  its  way.  Luxury  is  the  victory  of  the 
latter  passion.  The  mere  possession  of  a  surplus  is  not 
enough.  Some  men  remain  eagerly  devoted  to  gain,  when 
their  wealth  is  counted  in  millions :  others  retire,  satisfied 
with  the  most  moderate  competency.  The  force  of  either 
motive  will  be  greatly  influenced,  both  by  the  security  and 
the  profitableness  of  investments.  Every  thing  that  renders 
business  unsafe,  makes  withdrawal  more  desirable.  On  the 
other  hand,  every  thing  which  raises  the  reward  of  capital, 
takes  something  from  the  zest  of  luxury. 

2d,  To  what  extent  can  wealth  be  devoted  to  luxury  ? 

Gibbon  gives  countenance  to  the  theory,  that  no  state 
can,  without  soon  becoming  exhausted,  support  more  than  a 
hundreth  part  of  its  population  in  arms  and  idleness.  This 
is  to  be  understood  as  a  hundredth  part  of  the  population, 
taken  out  of  the  able-bodied  males  ;  say,  a  twentieth  part  of 
these.  The  estimate  is  interesting,  and  has  a  certain  share 
of  truth ;  but  its  form  shows  it  to  be  a  very  rude  one- 


396  CONSUMPTION.  [book  v. 

Does  it  make  no  difference  whether  this  portion  is  simply 
unproductive  or  also  destructive  ?  Does  it  make  no  dif- 
ference whether  these  idlers  are  maintained  in  the  dreamy, 
half-naked  indolence  of  Asiatics,  or  in  the  splendid  luxury 
of  courts  ?  no  difference  whether  the  general  production  of 
the  country  is  large  or  small ;  whether  the  wants  of  the 
people  and  the  necessities  of  government  are  few  and 
simple,  or  many  and  great ;  whether  rice  enough  for  a  year 
can  be  had  by  the  labor  of  two  weeks,  as  in  India,  or  a 
bushel  of  grain  costs  the  labor  of  eleven  days,  as  in 
Lapland  ?  The  Athenian  was  content  with  his  figs  and 
philosophy :  the  cultivated  Roman  craved  the  brains  of 
birds-of-paradise  for  his  food,  and  was  positive  he  wanted  a 
palace  on  the  Quirinal.  Which  maintained  the  larger  share 
of  its  population  in  idleness?  When  Frederick  the  Great 
faced  all  Europe  in  arms,  rye  bread  and  potatoes,  powder 
and  lead,  were  all  he  served  his  army,  —  marshals  and 
drummers  alike.  By  such  parsimony,  he  was  enabled  to 
make  Prussia  what  she  was,  —  "all  sting."  France,  with 
the  perfection  of  her  warlike  equipment,  and  the  fastidious 
taste  of  her  citizens,  could  not  maintain  a  proportionate 
number  of  troops,  even  under  the  conscriptions  of  the 
empire. 

It  is  in  this  light  that  we  see  the  impossibility  of  fixing, 
for  all  nations,  all  climates,  all  ages,  a  common  proportion 
of  luxury  that  can  be  maintained,  without  bringing  down 
the  standard  of  industrial  well-being.  At  the  same  time,  it 
is  plain  that  for  each  nation,  at  any  time,  there  must  be  a 
point  beyond  which  wealth  cannot  be  spent  in  enjoyment, 
or  time  in  idleness,  without  first  oppressing  the  laboring 
class  by  hard  exactions,  and  afterwards  debasing  the  entire 
state. 

We  have  already  anticipated  the  remark,  that  idleness  or 
leisure  is  a  form  of  luxury,  —  a  form  of  luxury  that,  in 
either  sense,  is  almost  unknown,  to  some  peoples,  whirled 
about,  as  they  are,  on  the  untiring  wheels  of  manufacture 


CHAP.  IV.]  LUXURIOUS  CONSUMPTION.  397 

and  trade ;  a  form  of  luxury  that,  as  idleness,  is  the  most 
costly  of  all  indulgences,  that  corrupts  all  manners,  perverts 
all  the  offices  of  nature,  wastes  all  the  powers  of  labor, 
and  has  its  complete  result  in  poverty,  ignorance,  and 
political  servitude  ;  a  form  of  luxury  which,  as  leisure, 
adorns  life,  and  makes  it  worth  living,  compacts  the 
acquirements  of  stu-dy  and  toil,  re-creates  and  refreshes 
the  whole  man,  and  leads  upward  to  an  eternal  rest  and 
felicity. 

OF    LEARNING  AND   ART. 

These,  in  the  economic  view,  may  have  value,  and  so  may 
be  produced,  exchanged,  distributed,  and  consumed.  The 
reward  they  receive,  the  price  they  bring,  is  in  no  sense 
due  to  them  in  their  own  right,  because  they  are  true, 
beautiful,  or  good  ;  but  arises  legitimately  out  of  the  desires 
they  gratify,  and  the  labor  they  cost.  It  is  the  appreciation 
of  a  service  rendered.  That  reward  will  vary  in  form  and 
degree,  at  every  state  of  society.  The  wandering  Homer 
was  content  with  the  most  simple  hospitality.  The  modern 
man  of  letters  has  his  rooms,  his  club,  his  carriage,  his 
opera,  paid  for  perhaps  out  of  very  mild  criticisms  on  the 
blind  bard  of  Greece.  There  is  not  a  real  scholar  of 
the  present  day  who  would  not  work  ten  years  in  the  mines, 
to  hear  Homer  recite  the  parting  of  Hector  and  Andromache. 
So  differently  is  the  same  service  counted  in  different  ages. 
Cicero,  long  before  he  reached  the  height  of  his  fame,  had 
received,  by  will,  £170,000,  as  a  tribute  to  his  genius.  The 
younger  Pliny  was  loaded  with  wealth  by  his  admirers. 
The  laureate  of  England  drinks  to  the  royal  bounty  in 
royal  wine.  Blackstone's  legal  profits  did  not  permit  his 
marriage  till  his  thirty-eighth  year.  A  popular  novel  or 
sketch-book  to-day  earns  a  fortune. 

Thus  it  is  that  learning  and  art  enter  into  wealth.  While 
their  rewards  are  uncertain,  and  apparently  wayward,  they 
have  yet,  from  the  mythic  days,  had  a  place  with  the  most 


398  CONSUMPTION.  [book  v. 

substantial  industries.  Whatever  may  be  true  of  the  quality 
of  such  productions,  the  amount  of  labor  bestowe'd  on  them 
obeys  strictly  the  same  laws  of  supply  and  demand  which 
govern  the  growth  of  cotton  or  wheat.  Economical  science 
has  no  occasion  to  take  them  out  of  the  same  category. 
When  one  man  gives  his  efforts  to  any  work  of  this 
character,  and  finds  one  other  who  has  a  desire  for  it,  that 
work  begins  to  have  value,  comes  hereby  into  the  domain 
of  political  economy,  and  must  submit  to  its  principles. 
Milton,  chaffering  for  the  price  of  "  Paradise  Lost,"  forms 
no  royal  exception  to  the  sovereignty  of  the  empire  he  has 
entered. 

What  is  the  character  and  effect  of  such  consumption  ? 
This  is  a  question  doubly  interesting,  having  an  importance 
to  general  scholarship,  as  well  as  to  our  immediate  science. 
Of  course,  learning  and  art  have  not  necessarily  to  establish 
an  economic  usefulness,  in  order  to  justify  their  pursuit. 
In  their  own  names,  they  have  sovereignty,  and  claim 
homage.  But  there  is  an  economic  relation  which  we 
cannot  overlook,  and  which  must  affect,  somewhat,  the 
place  which  they  shall  be  accorded  in  the  world.  In  brief, 
their  effect  upon  industry  may  be  defined  as  follows :  So  far 
as  they  give  dignity  to  human  aspirations,  furnish  new 
objects  to  human  desires,  enlarge  ambition,  develop  the 
useful  sciences,  and  suggest  the  application  of  new  powers,  as 
the  telegraph,  the  locomotive,  and  the  magnet ;  so  far  as  they 
unite  and  harmonize  social  and  political  divisions,  —  they 
are  of  inestimable  value ;  and  such  consumption  of  wealth 
as  rewards  and  encourages  them  is  seed  thrown  into  a  soil 
more  grateful  than  any  land  of  fable  or  story.  But  so  far 
as  learning  or  art  tend  to  produce  that  unmanly  senti- 
mentalism  which  shrinks  from  dirty  details,  present  duty, 
and  simple  fact ;  that  mawkish  cosmopolitanism,  moral  or 
political  indifference,  which  weakens  each  nationality,  with- 
out promoting  the  union  of  all ;  that  softening  of  the 
mental  fibre,  that  dissolution  of  the  will,  which  makes  man 


CHAP.  IV.]  LUXURIOUS   CONSUMPTION.  399 

the  slave  of  his  circumstances,  and  even  of  his  fellows ; 
and,  worst  of  all,  that  selfish  fastidiousness  which  shuts 
itself  in  from  human  activities  and  social  alliances,  to  dwell 
in  dreams  and  idle  imaginations,  whether  of  philosophy  or 
art,  —  why,  in  so  far,  we  must  call  such  an  employment  of 
time  and  labor,  not  merely  unprofitable,  but  mischievous, 
consumption. 

SUMPTUARY   LAWS. 

No  subject  stands  so  peculiarly  related  to  scientific 
inquiry  as  this.  There  is  no  scheme  of  governmental  action 
which  can  present  a  more  clear  and  convincing  argument, 
drawn  from  the  nature  of  things,  and  even  from  experience, 
prior  to  actual  legislation ;  while  none  has  been  more 
effectually  exploded  by  trial.  There  seems  to  be  a  perfect 
reason  for  sumptuary  laws ;  yet  the  general  sense  of 
civilization  has,  after  full  experiment,  settled  decisively 
against   them. 

It  is  impossible  to  look  about  the  smallest  community, 
without  being  grieved  at  the  manner  in  which  much  of  its 
labor  and  wealth  are  expended.  What  enlightened  person 
can  pass  once  through  any  street  of  human  habitation, 
without  seeing  very  many  instances  of  folly,  extravagance, 
perversion,  and  indolence,  which  are  wasting  the  best  gifts 
of  God  and  the  fairest  hopes  of  man?  And,  when  this 
view  is  carried  out  to  all  the  communities  of  a  nation,  it  is 
not  strange  that  philosophers  and  statesmen  have  come  to 
believe  most  earnestly,  that  by  salutary  curbs  on  expen- 
diture and  spurs  to  exertion,  by  reforming  dress,  diet, 
equipage,  and  establishment,  they  could  multiply  mani- 
fold the  comforts  of  the  people,  the  resources  of  the  state, 
and  the  means  of  social  and  moral  culture.  And  why  not  ? 
That  there  is  no  reason  manifest  in  the  nature  of  things  is 
proved  by  the  fact,  that  everywhere,  and  at  all  times,  the 
most  benevolent,  temperate,  and  sagacious,  alike  of  political 


400  CONSUMPTION.  [BOOK  V. 

rulers  and  of  political  writers,  have  agreed  in  recommending 
stringent  sumptuary  provision  and  inspection  by  law. 

And  yet  nothing  has  more  utterly  and  conclusively 
failed.  It  is  not  that  the  evil  is  imaginary;  for  enough 
wealth  and  power  are  wasted  to  make  every  human  being 
comfortable  and  happy.  It  is  not  that  the  state  of  things 
is  unsusceptible  of  reformation ;  for  the  matter  is  one  whol- 
ly of  human  choice,  and  open  to  the  control  of  the  public 
sanctions.  It  is  not  that  the  aggregate  sense  of  the  com- 
munity, in  matters  of  consumption  (not  of  production),  is 
not,  on  the  whole,  more  enlightened  and  less  fickle  than  that 
of  individuals.  We  say,  on  the  whole ;  for  there  have  been 
instances  in  which  laws  were  even  behind  the  instincts  of 
the  community,  and  proposed  to  compel  the  popular  energies 
and  tastes  to  less  advantageous  forms  of  consumption.  Aa 
instances,  we  may  cite  the  enactment  in  the  reign  of  Charles 
II.  of  England,  prescribing,  under  penalties,  the  interment 
of  the  dead  in  shrouds  made  of  wool,  for  the  encourage- 
ment of  that  manufacture ;  the  Spanish  Cortes,  petitioning 
in  the  same  breath  for  the  prohibition  of  coaches  and 
encouragement  of  bull-fights ;  and  all  of  the  recent  legisla- 
tion of  this  country,  in  any  form,  which  has  taken  for  its 
principle  the  absurdity,  that  to  issue  bonds  for  expenses 
incurred  in  the  work  of  destruction  adds  any  thing  but 
weight  to  the  national  burdens,  and  can  introduce  aught 
but  grievance  and  faction  into  our  politics.  Yet,  as  we  said, 
the  major  will  of  the  community  would,  on  the  whole, 
prescribe  a  more  harmonious  and  healthful  consumption  of 
wealth  than  that  which  follows  individual  choices.  Why, 
then,  has  law,  acting  to  this  end,  failed  of  its  purpose  so 
universally  and  so  manifestly,  that  such  enactments  are 
hardly  ever  proposed  at  the  present  day,  even  by  the  most 
sanguine  of  philanthropists  ? 

It  is  difficult  to  give  a  full  and  satisfactory  explanation. 
One  reason  is,  that  such  enactments  are  very  easy  of 
evasion.     Expenditure  is  not  a  matter  that  submits  readily 


CHAP.  V.]  PUBLIC   CONSUMPTION.  401 

to  inspection  and  proof.  The  interest  of  the  producer  and 
of  the  desire  of  the  consumer  are  against  the  enforce- 
ment of  the  law.  Then,  again,  luxury  can  take  on  so  many 
forms,  can  slip  so  readily  from  the  grasp  of  definitions 
and  specifications,  that  the  law  becomes  a  greater  trouble 
to  its  officers  than  to  its  offenders. 

But  the  grand  reason  is,  that  it  is  against  human  nature ; 
and  with  this  we  may  fairly  close  our  objections. 

But  all  these  furnish  no  conclusion  against  the  regulation 
of  public  morals  and  manners  in  things  that  affect  the 
happiness  and  safety  of  the  community.  It  is  no  longer 
legislation  to  supplement  the  wisdom  of  the  individual  or  in- 
struct industry.  It  becomes  the  defence  of  the  general  good. 
It  is  not  a  breach  of  personal  rights,  but  the  safeguard  of 
public  liberty.  If  there  is  any  habit  or  practice  which 
brings  disease  and  suffering  and  disorder,  which  abridges 
the  power  of  labor  and  the  span  of  life,  which  inflicts 
misery  upon  the  innocent  and  unoffending,  which  entails 
expense  upon  the  whole  community  for  the  charge  of 
pauperism  and  the  punishment  of  crime,  there  can  be  no 
doubt  of  the  right  and  duty  of  the  people  to  protect  them- 
selves, through  the  power  of  their  government,  by  the  most 
severe  and  efficient  laws  that  can  be  devised.  To  deny  this 
is  to  deny  the  validity  of  government  itself. 


CHAPTER  V. 

III.     PUBLIC    CONSUMPTION. 

There  is  an  economical  reason  for  government.  Without 
the  strong  arm  of  the  public  force,  men  could  not  work 
unmolested,  or  retain  the  results  of  their  labor.  Without 
law,  production  would  be  hindered  directly,  by  the  confusion 
of  society  and  the  interruption  of  violence.     But  far  more 

26 


402  CONSUMPTION.  [book  V. 

serious  would  be  the  secondary  effects  on  industry.  All 
motives  to  the  accumulation  of  wealth  would  be  withdrawn, 
by  the  insecurity  of  property.  Its  possession  might  even 
become   an   object  of  terror. 

We  cannot,  indeed,  trace  society  back  to  anarchy ;  for  a 
state  of  anarchy  is  impossible  with  human  nature.  Even 
the  savage  tribes  take  on  political  forms.  Like  a  drop 
whose  cohesion  is  violently  broken,  the  public  body  seeks 
to  form  itself  anew,  or  at  least  to  aggregate  itself  about  two 
or  three  new  centres.  Absolute  isolation  is  not  merely 
impolitic :  it  is  impracticable.  But,  as  far  as  we  can  go  back, 
on  the  path  of  social  order,  we  find  industry  answering 
to  law. 

To  what  share  is  government  entitled  in  the  general 
production  ?  If,  as  we  have  seen,  it  is  the  indispensable 
condition  of  all  wealth,  it  can  rightfully  claim  a  part  of  all 
wealth  ;  and  that  part  will  be,  at  the  least,  enough  to  sustain 
itself  in  this  economical  function.  It  owns  just  as  much 
of  this  wealth  it  has  helped  to  create  as  is  necessary  to 
continue  itself;  for,  without  this,  wealth  could  not  be.  The 
absolute  necessities  of  government,  then,  afford  the  mini- 
mum measure  of  its  share  in  wealth. 

Has  government  no  right  to  more  than  what  is  essential 
to  its  support  in  this  economical  function  ?  Its  industrial 
work  embraces  a  wider  field  than  appears  in  the  simple 
statement.  In  America,  education  is  required  as  a  part  of 
the  public  police ;  and  our  eminent  statesmen  have  estimated 
the  outlay  of  schools  and  colleges  cheap,  in  the  results  on 
order  and  security.  In  Great  Britain,  the  church  has  been 
held  to  be  a  legitimate  agent  of  the  public  force,  and  its 
maintenance  is  provided  for  out  of  the  public  purse.  Gov- 
ernment may  employ  means  of  influence,  numerous  and 
remote,  all  in  the  interest  of  peace. 

But  has  it  no  right  to  property  beyond  this  ?  Plainly 
it  has.  We  must  not  be  as  stringent  in  our  scientific 
views  as  young  Gobbo,  and  complain  that  "  this  making  of 


CHAP.  V.]  PUBLIC   CONSUMPTION.  403 

Christians  will  raise  the  price  of  pork."  Political  economy 
recognizes  that  humanity  has  other  interests  than  wealth, 
and  respects  the  claim  of  government  to  duties  and  services 
for  the  sake  of  a  moral  good.  But  such  reasons  should 
appear  clearly.  Nothing  should  be  taken  arbitrarily,  or  for 
contingent  use.  Man  is  the  direct  producer,  and  the  product 
remains  in  his  hands.  If  government,  as  indirectly  engaged 
with  him,  enters  with  a  claim  to  share  the  profits,  it  must 
show  cause  distinctly  for  whatever  it  takes.  It  is  the  part 
of  the  statesman,  not  of  the  economist,  to  judge  of  occasions 
like  these. 

Having  denned  the  right  of  government  economically  to 
participate  in  wealth,  two  considerations  naturally  precede 
the  discussion  of  methods :  — 

1st,  Government  should  undertake  nothing  that  can  be 
left  to  individual  enterprise. 

If  we  admit  that  the  difficulties  which  surround  industry 
are  imposed  for  our  good,  and  form  a  part  of  our  discipline 
and  culture,  political  society  palpably  acts  on  a  false  idea 
when  it  relieves  the  citizen  of  his  own  proper  responsibil- 
ity, care,  or  labor,  and  assumes  his  natural  duties.  This, 
however,  is  not  the  only  reason  against  such  interference. 
Government  never  does  the  work  of  individuals  as  well  as 
it  can  be  done  by  individuals. 

It  is  related  of  Herodes  Atticus,  that,  having  come  upon  a 
great  treasure  concealed  in  the  ground,  he  took  it  to  Nerva, 
and  pressed  it  on  his  acceptance,  saying,  "  it  was  too  con- 
siderable for  a  subject  to  use."  — "  Abuse  it,  then,"  replied 
the  emperor.  The  anecdote  has  great  significance  as  to  the 
employment  of  wealth.  Its  abuse  by  the  citizen  is  almost 
preferable  to  its  use  by  the  state.  If  government  were 
conceived  to  be  always  wise,  it  would  still  be  better,  on  the 
whole,  that  citizens  should  direct  their  own  industrial  mat- 
ters, wisely  or  unwisely,  as  might  happen.  But,  when  the 
liability  of  government  to  err  is  confessed,  we  have  a  double 
argument  against  taking  the  fee  or  use  of  wealth  out  of 


404  CONSUMPTION.  [book  V. 

private  hands.  It  cannot  be  too  often  or  earnestly  insisted 
on,  that  individual,  interested  supervision  is  the  grandest 
economical  condition,  and  should  never  be  departed  from 
till  the  work  becomes  too  vast  for  single  hands. 

2d,  Government  should  do  nothing  for  display. 

For  ages  the  science  of  politics  might  be  summed  up  in 
the  word  "  pageantry."  To  dazzle  the  vulgar  eye,  and  over- 
awe the  common  sense  of  the  people,  by  splendid  equipage 
and  stately  building,  has  been  the  main  theory  of  rulers. 
The  system  certainly  has  not  failed  for  want  of  trial. 
There  have  been  governors  who  earnestly  sought  to  prove, 
that  the  power  of  the  law  and  the  peace  of  the  subject  did 
not  depend,  on  show.  The  simplicity  and  austerity  exhib- 
ited by  Carus  of  Rome,  Julian  of  Constantinople,  Elizabeth 
of  England,  the  Great  Frederick  of  Prussia,  and  the  Saracen 
caliphs  in  all  ages,  stand  in  marked  contrast  with  the  wicked 
and  ruinous  extravagance  that  has  marked  the  administra- 
tion of  most  of  the  governments  of  the  world. 

It  is  gratifying  to  believe,  that,  in  some  countries,  the 
advance  of  economic  principles  has  relieved  the  people 
of  great  burdens  by  limiting  the  display  of  government. 
Imagine  the  storm  in  Parliament,  had  it  been  proposed  to 
buy  the  great  Sanci  diamond  *  for  the  British  crown.  Yet, 
two  centuries  ago,  the  heart  of  England  would  have  craved 
it  for  the  royal  brow. 

3d,  The  expense  of  government  will  vary  according  to 
the  circumstances  and  character  of  the  people. 

Some  peoples  have  a  government  as  simple,  primitive,  and 
cheap  as  their  clothing ;  while  others,  no  more  highly  civil- 
ized, manifest  an  inclination  to  complicated  and  refined 
forms  of  administering  law,  which  bring  a  heavy  burden  of 
taxation  on  the  present,  and  entail  permanent  debt  on  pos- 
terity. Some  nations  are  obliged,  by  their  position,  to  build 
themselves  around  with  fortifications,  and  maintain  extensive 
forces,  just  as  some  countries  can  keep  out  the  ocean  only 

*  Disposed  of  at  private  sale  in  1865. 


CHAP.  V.]  PUBLIC   CONSUMPTION.  405 

by  artificial  dikes  and  levees  ;  others  have  a  natural 
strength,  or  an  isolation,  that  is  good  to  them  as  strong 
armies.  Some  peoples  can  be  governed  readily  in  the  plain- 
est manner  by  rulers  who,  like  the  caliphs,  sweep  their 
own  floors,  patch  their  own  shoes,  milk  their  cows,  and  live 
on  soldier's  fare ;  others  are  supposed  to  require  an  im- 
mense amount  of  pageantry  to  dazzle  the  public  eye,  and 
occasional  wars,  wasting  thousands  of  men  and  millions  of 
money,  to  divert  the  common  mind  from  troublesome  ques- 
tions, and  keep  the  peace  at  home. 

Russia  spends  yearly  three  dollars  a  head  in  governing 
her  people  and  supporting  her  armies  ;  Prussia,  five  dollars  ; 
the  United  States,  up  to  1860,  two  and  a  half  dollars,  reck- 
oning only  the  federal  establishment ;  Great  Britain  runs 
her  expenditure  up  to  ten  dollars.  Political  economy  has 
great  charity  for  claims  based  on  public  considerations. 
It  allows  that  whatever  is  really  necessary  for  peace  and 
order  and  property,  in  full  view  of  the  national  peculiari- 
ties or  geographical  difficulties,  is  economically  well  spent 
and  a  good  investment  of  capital. 

It  is  not  alone  the  direct  office  of  preventing  immediate 
crime,  and  protecting  present  property,  that  government  per- 
forms at  so  great  cost.  Civil  law  is  an  educator.  It  gives 
a  prospect  and  a  security  for  the  future ;  it  multiplies  the 
ambitions  and  the  desires  of  all  who  live  under  it ;  it  ele- 
vates the  self-respect  and  trains  the  self-control  of  all  good 
citizens. 

Yet  government  charges  heavily  for  what  it  does.  The 
yearly  revenue  of  the  European  states  is,  at  present,  very 
little,  if  any,  short  of  fifteen  hundred  millions  of  dollars. 
The  expenditure  of  the  United  States,  even  if  no  attempt 
is  made  to  liquidate  the  public  debt,  will  not,  probably,  be 
less  than  three  hundred  millions ;  and  this,  exclusive  of  all 
the  service  of  State  and  municipal  government. 

On  the  whole,  it  may  be  said  of  this  duty  of  capital  to 
support  government,  that  it  pays,  as  an  investment,  what- 


406  CONSUMPTION.  [book  V. 

ever  it  may  necessarily  cost ;  but  that  the  expense  should 
be  strictly  held  down  to  the  lowest  practicable  figure. 

DOES  PUBLIC   CONSUMPTION   ENCOURAGE   INDUSTRY  ? 

We  shall  get  the  principles  of  such  a  discussion,  in  their 
bare  form,  by  taking  the  extreme  actual  cases  of  this  mode 
of  consumption. 

There  have  been  instances  in  which  the  people  of  cities, 
and  even  generally  of  States,  have  claimed  work  at  the 
hands  of  government,  to  support  life  ;  and  we  find  that  such 
provision  has  been  at  times  really  made. 

We  will  suppose  the  claim  to  be  founded  on  absolute 
necessity,  no  work  whatever  being  offered  at  private  hands. 
The  state,  in  compassion  or  from  fear,  employs  the  mass 
of  its  laborers  on  public  works,  and  pays  them  from  the 
public  purse. 

What  is  the  real  condition  of  things  ?    It  is  one  of  two :  — 

1st,  If  the  work  so  performed  is  unnecessary,  having 
been  arranged  solely  to  meet  the  popular  emergency,  this 
is  merely  a  mode  of  government  charity.  So  much  is  taken 
out  of  the  resources  of  the  state  to  maintain  its  indigent 
citizens.  It  comes  finally  as  a  tax  on  all  productive  indus- 
try. The  classes  that  create  values  are  called  on  to  con- 
tribute, it  may  be  largely  and  painfully,  to  feed  and  clothe 
those  which  do  not. 

How  does  this  answer  the  conditions  of  a  successful 
charity  ? 

(a)  Such  artificial  industries  require  great  expense  be- 
yond the  simple  wages  which  the  laborer  receives  from  the 
national  treasury.  If  these  workmen  were  employed  only 
in  digging  trenches  to  fill  them  up  again,  the  additional 
cost  would  be  only  for  tools  to  work  with  and  land  to  work 
over.  But  government,  in  such  cases,  always  maintains  a 
certain  semblance  of  purpose.  There  is  a  pretence  of  useful- 
ness, immediately  or  remotely.     This  generally  calls  for  a 


CHAP.  V.]  PUBLIC   CONSUMPTION.  407 

great  amount  of  material,  in  one  form  or  another,  all  of 
which  makes  a  dead  loss  to  the  community,  not  even  the  poor 
getting  it  as  charity.  Such  is  the  case  where  costly  public 
buildings,  or  vessels  of  war,  are  constructed  simply  to  pro- 
vide labor  for  the  destitute.  Often  the  expense  to  the  state 
is  many  times  greater  than  the  sum  which  is  divided  among 
the  suffering  poor.  There  are,  besides,  the  salaries  of  offi- 
cials, in  great  numbers,  to  superintend  the  labor  ;  no  incon- 
siderable item  in  public  industries. 

(5)  We  have,  on  the  other  hand,  an  advantage ;  viz.,  that 
this  mode  of  receiving  charity  saves  the  self-respect  of  the 
workman.  If  government  adjusts  the  rate  of  wages  intel- 
ligently, it  is  certain  that  none  but  those  who  really  need 
employment  will  seek  it ;  and  in  receiving  wages  for  work, 
even  if  that  work  is  fictitious,  they  will  not  feel  degraded. 
Of  course,  it  is  economically  very  desirable  that  the  instinct 
of  self-support  should  be  kept  strong  and  keen  among  the 
laboring  class. 

(<?)  There  is  also  the  consideration  that  these  artificial 
enterprises  entail  a  burden  on  the  future.  The  work,  when 
completed,  is  handed  over  to  the  public  authorities,  to  be  an 
object  of  costly  maintenance,  till  happily  destroyed  by  time 
or  violence.  In  this  way  a  tax  is  perpetuated  on  the  com- 
munity for  a  relief  that  was  perhaps  of  the  most  temporary 
character. 

2d,  If  the  work  to  be  performed  is,  in  whole  or  in  part, 
necessary  or  desirable,  the  pay  of  the  laborer  is  so  far  taken 
out  of  the  denomination  of  charity.  He  has  rendered  a  real 
advantage,  —  it  may  be  to  the  full  extent  of  the  wages  he 
receives.  Neither  government  nor  his  fellow  can  question 
his  right  to  the  remuneration,  or  taunt  him  with  pauperage. 
Still,  supposing  this  mode  of  employment  necessary,  we 
have  some  important  considerations  presented. 

(a)  Though  the  laborer  renders  the  full  value  of  his 
wages,  the  public  often  does  not  receive  it.  It  is  a  perfectly 
established  principle,  that,  in  most  departments  of  industry, 


408  CONSUMPTION.  [book  V. 

government  cannot  compote  with  individuals.  The  dis- 
honesty and  indifference  of  its  agents  need  not  be  dwelt 
on  here.  It  is  a  recognized  maxim  of  business,  iliat  self- 
interest  and  personal  observation  are  the  conditions  of 
that  intelligence  and  economy  which  secures  success.  How 
entirely  evident  it  is,  that  the  public  will  seldom,  if  ever,  be 
fortunate  enough  to  obtain  officers  who  can,  if  they  would, 
manage  its  affairs  as  their  own ! 

(6)  There  are  times  and  cases  in  which  this  wholesale 
employment  by  government  may  be  useful,  even  if  we  allow 
the  superior  cheapness  of  individual  work.  There  are 
great  enterprises  which  can  be  undertaken  only  by  the 
constituted  authorities  of  the  nation.  There  are  duties, 
not  only  too  large  for  private  or  corporate  power,  but  too 
important  to  be  left  to  the  chances  of  individual  manage- 
ment. Such,  of  course,  is  the  maintenance  of  civil  and 
military  police,  which,  so  far  as  it  is  necessary,  must  be  in 
public  hands,  and  cannot  be  let  or  farmed  out,  consistently 
with  the  honor  and  dignity  of  government. 

(c)  But  these  occasions  for  government  to  enter  the 
field  of  industry  are  few  and  definite.  They  cannot  be 
exceeded  without  loss  of  wealth  and  demoralization  of 
labor.  Government  should  not  only  refrain  from  under- 
taking any  work  not  necessary  in  its  oivn  interest,  but 
should,  as  far  as  possible,  let  out  what  is  necessary  to  com- 
petition and  individual  enterprise.  Wherever  the  character 
of  the  operation  is  not  such  that  its  reliability  concerns 
immediately  the  existence  of  the  nation  or  the  lives  of 
citizens,  it  should  be  left  to  the  general  industry. 

We  have,  thus  far,  discussed  the  employment  of  laborers 
by  government,  on  the  strict  supposition  of  a  necessity  ex- 
isting at  the  time.  We  have  seen  that  such  a  necessity 
might  overrule  economic  laws,  and  justify  governments  in 
such  a  course  ;  but  we  have  also  seen  those  evils,  even 
in  this  case,  which  will  save  us  any  very  extended  con 
sideration  of  the  question,  whether   governments  should, 


CHAP.  V.]  PUBLIC   CONSUMPTION.  409 

without  reference  to  an  immediate  distress  among  its 
people,  enter  the  market  of  labor  ;  and,  in  the  consumption 
of  wealth,  become  a  competitor  with  individual  industry, 
even  when  the  objects  selected  are  wholesome  and  natural. 

(a)  In  a  free  people,  and  with  fair  laws  of  distribution, 
there  will  seldom  be  occasion  for  such  employment  by 
governments,  except  in  its  own  interest.  No  able-bodied 
laborer  can  render  to  an  official  as  much  service  as  to  an 
individual  employer ;  the  reason  being,  that  the  fbrmer  is 
not  capable  of  receiving  the  service  so  perfectly.  And  it 
ought  never  to  be  true,  that  an  able-bodied  laborer  is 
compelled  to  seek  work  at  the  hands  of  government.  It 
will  not  happen,  until  wicked  laws  have  deprived  him  of 
that  employment,  which,  in  a  natural  order  of  things,  he 
obtains  simply  in  virtue  of  his  ability  to  achieve  the  satis- 
faction of  human  wants. 

(h)  Such  employment  by  government  perpetuates  de- 
pendence. It  has  been  found  strikingly  true  in  the  history 
of  great  experiments  after  this  fashion.  Men  once  accus- 
tomed to  feed  at  the  public  board,  whether  as  princes 
or  day-laborers,  are  very  loath  to  return  to  the  primitive 
fare  of  private  life.  Relief  from  the  stringent  but  neces- 
sary laws  of  competition  becomes  almost  a  second  nature ; 
and  few  are  found  willing  to  break  off  from  this  reliance  on 
government  support. 

(c)  Such  employment  by  government  demoralizes  the 
general  industry  of  the  country.  A  false  scale  of  prices  is 
established,  since  government  does  not  buy  or  sell  under 
exactly  the  same  motives  as  individuals.  An  unnatural 
competition  is  introduced  into  labor.  The  market  is  im- 
properly controlled  by  the  immense  resources  of  the 
administration  :  in  consequence,  all  other  branches  of  pro- 
duction are,  to  a  greater  or  less  extent,  disturbed  and  kept 
restless. 

(d)  Such  employment  by  government  induces  political 
corruption.     It  is  not  consistent  with  our  purpose  to  enlarge 


410  CONSUMPTION.  [BOOK  V. 

upon  this  subject,  but  only  to  show  its  place.  The  fact  is 
undeniable ;  and  while  government  must  accept,  as  a  neces- 
sity, a  certain  amount  of  improper  influences  attending  its 
operations,  this  should  be  a  potent  argument  against  any 
assumption,  on  its  part,  of  unnecessary  work. 

A  great  part  of  the  discussion  of  this  question  would 
more  aptly  come  into  the  department  of  "  Production  ; "  but 
it  is  so  bound  up  with  popular  theories  of  government  ex- 
penditures, as  encouraging  industry,  that  it  is  fairly  brought 
within  the  present  field  of  inquiry:  and  it  is  from  the 
point  now  reached  that  we  get  the  best  view  of  that  absurd 
doctrine  which  proclaims  that  national  extravagance  stimu- 
lates trade,  and  promotes  the  general  welfare. 

We  have  seen,  that  any  expenditure  by  government,  even 
for  necessary  purposes,  is  made  at  a  disadvantage  to  itself, 
and  is  attended  by  many  marked  inconveniences  and  mis- 
chiefs to  society ;  and  that,  so  far  as  consistent,  individual 
enterprise  should  be  substituted.  In  how  strong  a  light, 
then,  do  we  see  the  folly  of  that  scheme  of  national  pros- 
perity which  looks  to  lavish  outlay  by  government  for  any 
purpose,  whether  productive  or  destructive,  of  luxury  or 
war !  The  share  of  some  interested  portion  of  the  com- 
munity may  be  larger,  or  come  more  easily ;  but  the  sum  of 
wealth  is  diminished,  and  the  healthful  laws  of  distribution 
are  disturbed. 

Yet,  in  the  recent  gigantic  warlike  operations  of  the 
United  States,  it  was  a  daily  experience  to  hear  the  accept- 
ed teachers  of  political  philosophy  gravely  pronounce  the 
condition  of  the  country  to  be  most  gratifying,  loudly 
congratulating  the  public  on  the  stimulus  given  to  industry 
by  the  outlay  of  government.  Trade  was  brisk,  because  the 
nation  was  running  three  thousand  millions  in  debt,  to  be 
just  so  much  poorer  for  centuries.  We  do  not  question  that 
the  occasion  justified  the  expense ;  but  this  was  none  the 
less  an  unfortunate  necessity,  and  the  liveliness  of  business 
was  the  most  melancholy  feature  of  the  national  condition. 


CHAP.  VI.]  CHARITY  AND   POOR-LAWS.  4H 


CHAPTER  VI. 

CHARITY    AND    POOR-LAWS. 

In  its  broadest  sense,  half  the  world  exists  on  charity ; 
and  the  amount  of  wealth  so  distributed,  exceeds  calcu- 
lation. 

Man  comes  into  the  world  a  helpless  being.  If  left  alone, 
he  dies.  He  has  not  the  faculties  of  self-defence  and  self- 
support  that  brute  young  possess.  Years  pass  before  he 
attains  the  power  of  maintaining  his  own  existence. 

Even  in  the  best  states  of  society,  woman  is,  to  a  great 
degree,  rendered,  by  delicacy  of  constitution,  incapable  of 
self-support.  At  times,  the  fierce  competitions  of  trade 
may  be  hushed  when  she  comes  among  them  ;  yet  she  must 
always  subsist  somewhat  by  the  sufferance  of  the  fiercer 
and  stronger  sex.  In  the  barbarous  state,  she  is  the  tool  and 
slave  of  man. 

Besides  these  large  classes,  the  field  of  adult  manhood  is 
trenched  upon  by  accidents  of  birth  or  circumstance,  that 
render  thousands  incapable,  physically  or  mentally,  of  earn- 
ing a  livelihood. 

All  these  must  live  by  charity. 

But  in  the  sense  of  economy,  in  our  modern  civilized 
state,  the  field  of  this  agency  is  greatly  limited.  The  family 
relation  adopts  by  far  the  greater  part  of  all  who  are  help- 
less to  control  their  own  condition.  There  have  been  peo- 
ples where  children  were  the  property  of  the  state,  and 
were  reared  at  the  public  charge.  There  have  been  com- 
munities where  women  were  had  in  common,  and  their 
maintenance  was  included  in  the  budget  of  the  treasurer. 
But  the  world  has  settled  down  to  the  family  relation,  and 
so  we  are  to  consider  it. 

But  there  are  yet  melancholy  outcasts  from  society, — 
aged  folk  and  cripples  and  young  children,  —  who  have  lost 


412  CONSUMPTION.  [BOOK   V. 

their  staff  and  stay  by  the  natural  course  of  life,  by  the  rav- 
ages of  vice,  by  appalling  accidents,  or  by  the  devastations 
of  war.  These  form  a  great  community,  over  which  the 
state  is  called  to  watch  with  tender  care  ;  a  solemn  trust, 
appealing  to  the  holiest  feelings  of  our  nature.  For  these 
it  has  to  provide,  not  food  and  shelter  alone,  but  healing  for 
their  diseases,  correction  for  their  vices,  help  for  their  in- 
firmities of  body  and  mind,  instruction  and  useful  arts,  as 
far  as  they  are  capable  of  receiving  them. 

Such  are  the  natural  constituents  of  this  class ;  but  un- 
fortunately, by  social  obstructions  and  political  oppression, 
we  find,  in  some  communities,  thousands  of  able-bodied 
and  hard-working  men  dragged  down  into  the  mire  of 
beggary,  compelled  by  wicked  institutions  to  shameful 
want. 

There  is  hardly  any  social  result  so  distressing  as  the 
reduction  of  the  healthy  workman  to  the  low  ground  of 
charity.  This,  found  in  almost  any  degree  in  a  political 
system,  must  be  held  to  offset  a  great  many  splendid  merits  ; 
while  freedom  from  such  conditions  must  be  accepted  as 
satisfaction  for  many  conspicuous  defects.  Legislators 
should  ever  consider  the  independence  of  the  poor  man  as 
the  visible  "  fulfilment  of  the  law."  It  is  a  crying  curse, 
that  ever  a  stout  man,  glad  to  work,  should  be  forced  to 
beg. 

In  the  United  States,  the  question  of  charities  has  not 
that  engrossing  interest  which  it  commands  in  the  older 
peoples  of  the  world.  Land  here  is  so  cheap,  labor  so  much 
in  demand,  that  no  able-bodied  man  has  any  excuse  for 
pauperism.  And  even  a  large  share  of  those  disabled 
by  severe  accidents  are  yet  competent  to  earn  something 
for  livelihood,  in  a  country  where  every  hand  is  wanted  for 
work.  It  is  probable,  that  the  pauperage  of  the  nation  is 
not,  in  ordinary  times,  equal  to  one-half  of  one  per  cent  of 
its  population  ;  while  England  and  Wales  had,  in  1859,  four 
and  a  half  per  cent;  Holland,  in  1855,  eight  and  a  half; 


CHAP.  VI.]  CHARITY  AND   POOR-LAWS.  413 

Belgium,  in  1846,  sixteen  ;  East  and  "West  Flanders  rising 
that  year  to  thirty  per  cent. 

The  methods  of  charity  have  not,  therefore,  the  same 
importance  with  us  which  they  bear  elsewhere.  It  is  a 
matter  of  profound  concern  with  others,  that  pauperism 
should  be  in  every  way  discouraged,  and  that  what  of  it 
is  necessary  should  be  as  cheaply  arranged  as  possible. 
Here,  the  only  occasion  for  anxiety  is,  lest  some  unfortu- 
nate should  be  overlooked  in  the  general  prosperity  of  the 
country.  It  will  not,  however,  be  without  interest  and  in- 
struction to  regard  carefully  the  practical  principles  which 
should  govern  the  administration  of  charity. 

1st,  "What  classes  are  entitled  to  charity  ? 

Manifestly  all  who  are  unable  to  subsist  in  human  de- 
cency without  it. 

But  should  government  provide  nothing  for  those  who, 
having  wantonly  wasted  their  means  and  gifts  of  labor,  find 
themselves,  and  those  dependent  on  them,  suffering  for  the 
necessaries  of  life?  "We  answer,  that  the  liberty  of  the 
subject  is  not  a  privilege  to  become  a  pauper;  that  gov- 
ernment has  the  right  to  protect  itself;  that  it  may,  by 
stringent  enactments  concerning  vagrancy  and  indolence, 
anticipate  the  operation  of  such  causes ;  that  it  may  en- 
courage industry  by  rewards,  or  compel  it  by  pains  and 
penalties ;  that  it  may  apply  to  vicious  pauperism  the  same 
severity  as  to  crime.  Yet,  when  all  this  is  granted,  and 
all  this  done,  there  will  still  remain  a  certain  degree  of 
physical  want,  the  result  of  sinful  and  slothful  habits. 
Of  this  the  state  must  have  charge.  No  man  may  be  al- 
lowed to  starve,  however  clearly  his  destitution  may  be 
the  effect  of  his  own  folly  or  wickedness.  "  It  is  better," 
said  the  Boman  law,  "  that  vagabonds  should  die  of  hun- 
ger, than  that  they  should  be  supported  in  their  beggary." 
In  the  light  of  Christianity,  we  have  a  wider  view  of  politi- 
cal duties.  The  sharpest  incitement  to  labor,  the  sternest 
punishment  of  vice,  is  equally  just  to  society  and  kind  to 


414  CONSUMPTION.  [BOOK   V. 

the  subject ;  but  that  the  vilest  outcast  should  perish  of 
hunger  by  the  actual  permission  of  government,  would 
eclipse  the  brightest  glories  of  conquest  or  commerce  which 
a  Christian  nation  can  acquire. 

Here  we  have  an  important  practical  precept  concerning 
governmental  or  individual  charity ;  viz.,  the  frequent  and 
careful  revision  of  claims  to  assistance.  There  should  be 
no  prescription  in  beggary,  nor  any  thing  taken  for  granted. 
The  inability  of  self-support  should  be  distinctly  proved,  or 
the  applicant  forced  to  work. 

2d,  Who  should  administer  charity  ? 

An  argument  might  be  made  from  the  principle  of  benev- 
olence and  the  sensibility  to  another's  distress  found  in  the 
constitution  of  our  nature,  that  charity  was  not  alone  de- 
signed for  government,  but  that  the  relief  of  the  poor  is  appro- 
priate to  private  hands.  And  there  is  a  plain,  economical 
reason,  in  that  such  contributions  can  be  made  more  timely, 
more  judiciously,  and  more  cheaply,  by  the  offices  of  indi- 
viduals than  by  public  agencies.  There  is  a  further  reason, 
not  less  economical  than  moral,  that  assistance  rendered 
in  this  form  does  less  hurt  to  the  feelings  of  the  recipient. 
The  interests  of  production,  not  less  than  the  law  of  kind- 
ness, object  to  the  unnecessary  lowering  of  the  self-respect 
of  any  class  or  person.  To  accept  charity  from  a  neigh- 
bor, under  the  pressure  of  extraordinary  misfortune,  could 
impeach  the  honor  of  no  one  ;  but  to  take  bread  from  gov- 
ernment carries  with  it  a  sort  of  taint  of  beggary  through  life. 

But  this  does  not  in  the  least  excuse  mendicancy,  whose 
principle  is  directly  opposed  to  that  of  intelligent,  equable 
charity.  It  is  prohibited,  under  severe  penalties,  in  almost 
all  communities,  though  the  sympathy  of  the  solicited  and 
the  condition  of  the  solicitor  take  much  from  the  terrors  of 
the  law. 

Here,  then,  in  individual  contributions,  we  have  one  of 
the  main  instruments  by  which  the  relief  of  the  poor  should 
be  effected. 


CHAP.  VI.]       CHARITY  AND  POOE-LAWS.  415 

There  is  another  class  of  voluntary  agencies,  standing 
between  individual  charity  and  that  of  the  state,  consisting 
of  mutual-relief  societies  and  trade  associations,  established 
for  the  purpose  of  assisting  their  members  over  the  rough 
places  of  life.  When  honestly  formed,  and  held  to  their 
legitimate  work,  they  have,  economically,  all  the  advantages 
of  division  of  labor.  With  this  they  unite  a  considerable 
share  of  intelligence,  as  to  the  special  deserts  of  applicants. 
There  is  also,  and  principally,  the  consideration,  that  relief 
from  this  source  is  thought  to  have  nothing  degrading, 
and  so  preserves  the  self-respect  of  those  who  receive  the 
aid. 

This  agency  is  very  extensive  in  all  the  countries  of 
Europe,  and  in  all  the  States  of  America.  By  the  most 
recent  statistics  available,  the  voluntary  associated  charities 
of  London  alone  include  the  efforts  of  four  hundred  and 
eighty-six  institutions,  with  the  annual  expenditure  of 
£1,222,529,  while  the  mutual-relief  societies  of  France 
number  4,125,  with  a  membership  of  535,233,  which,  with 
four  persons  to  a  family,  would  give  a  sphere  of  activity 
embracing  more  than  two  millions  of  people. 

Prominent,  too,  in  this  view,  we  see  the  noble,  economical, 
and  Christian  scheme  by  which  the  great  body  of  Quakers, 
or  Friends,  throughout  the  world,  assume  the  care  and 
support  of  all  the  infirm  or  helpless  of  their  order ;  so  that 
no  one  can  come  upon  the  colder  charities  and  harsher  dis- 
cipline of  public  maintenance. 

Yet  all  these  methods  cannot  be  relied  on,  by  themselves, 
for  all  times  and  at  all  places.  The  state  should  assume 
the  responsibility  and  control  of  the  poor  everywhere.  It  is 
a  part  of  the  national  concerns  that  no  subject  shall  suffer 
from  want.  After  all  that  individual  and  associated  charity 
can  do,  there  will  be  an  immense  amount  of  the  most 
repulsive  and  unromantic  want  and  misery  awaiting  remedy 
by  government. 


416  CONSUMPTION.  [BOOK   V. 

3d,  By  what  branches  of  the  government  should  public 
charity  be  administered  ? 

We  answer,  that,  in  the  mere  relief  of  poverty,  local 
authorities  be  charged  with  the  dispensation,  though  the 
state  may,  and  indeed  should,  compel  them  to  do  it,  and 
perhaps  regulate  the  degree  and  manner  of  it.  Wherever 
a  pauper  has  his  residence,  there  he  should  receive  what- 
ever assistance  he  is  to  have.  More  work  can  be  got  out  of 
him,  his  character  and  claims  will  be  better  understood,  he 
will  be  nearer  to  returning  into  the  condition  of  self-support, 
and  each  community  will  have  an  active  interest  to  diminish 
its  pauperage.  All  this  is  additional  to  the  greater  expense 
of  monster  workhouses,  and  the  corruption  they  are  sure  to 
breed. 

We  said,  "  in  the  mere  relief  of  poverty."  But  govern- 
ment charity  has  to  do  with  other  classes  with  which  the 
rule  of  assistance  is  directly  opposite.  Hospitals  for  the 
disabled,  asylums  for  the  insane,  schools  for  the  blind, — 
these  should  be  aggregated  to  secure  the  best  scientific  treat- 
ment and  the  greatest  natural  advantages. 

4th,  To  what  extent  should  charity  be  given  ? 

To  the  full  extent  of  the  necessities  of  the  subject.  The 
destitute,  whether  maintained  in  their  own  homes  or  in 
houses  devoted  to  that  purpose,  should  be  required  to  do  all 
the  work  they  are  really  able.  This  is  just ;  for  the  govern- 
ment has  the  right  to  diminish  its  own  burden.  It  is  kind ; 
because,  by  keeping  up  their  habits  of  industry,  it  preserves 
self-respect  and  bodily  vigor,  and  may  in  time  enable  them 
to  return  to  a  condition  of  self-support.  To  render  any 
more  assistance  than  is  really  necessary,  is  not  to  relieve 
pauperism,  but  to  create  it. 

The  English  system  includes  two  methods :  1st,  The 
allotment,  which  is  the  cheap  rental  to  the  poor  of  certain 
portions  of  land,  from  which,  by  their  own  industry,  to 
procure  some  of  the  necessaries  of  life  ;  2d,  The  parish 
allowance,  which  affords   weekly  assistance  to  a  certain 


CHAP.  VI.]       CHARITY  AND  POOR-LAWS.  417 

amount,  —  say,  two  shillings, —  to  eke  out  wages.  These,  in 
some  circumstances,  may  give  a  real  and  permanent  relief ; 
but  it  is  found  in  England,  that  this  kind  of  charity  is  so 
general,  that  employers  reduce  wages  still  further,  in  expec- 
tation of  it,  and  the  laborer  is  soon  brought  to  distress 
again.  Such  a  state  of  things  is  a  misfortune,  arising,  not 
from  defects  in  the  system  of  charity,  but  jointly  from  the 
want  of  independence  and  intelligence  in  the  laboring  class, 
and  from  the  operation  of  vicious  institutions,  which  lock 
up  the  natural  means  of  subsistence,  or  take  them  away  in 
excessive  taxes. 

It  is  in  this  failure  —  acknowledged  equally  by  govern- 
ment and  by  scientific  writers  —  of  the  English  charitable 
system,  under  which  one  million  families  have  been  kept 
in  substantial  pauperism,  while  there  was  found  at  least 
another  million  "just  above  the  paupers,  always  in  peril, 
lest  they  should  become  paupers,"* — it  is  here  we  reach  the 
true  principle  of  this  matter  of  public  charity. 

Poor-laws  may  be  effective,  to  the  full  extent,  in  provid- 
ing for  all  pauperism  that  results  from  natural  or  accidental 
disability  of  body  or  mind  for  self-support.  Government 
may  relieve  every  form  of  such  distress  with  entire  satisfac- 
tion of  the  individual  need,  and  with  perfect  justice  to  the 
community.  But,  as  soon  as  the  necessities  of  a  people 
bring  able-bodied  workmen  within  the  scope  of  poor-laws,  it 
is  certain  that,  while  temporary  relief  should  be  afforded, 
the  remedy  must  be  sought  elsewhere.  The  reason  is  as 
follows :  Charity  to  the  disabled  is  simple  gratuity,  wholly 
outside  the  laws  of  value,  and  involving  a  definite  expense ; 
but  charity  to  the  laboring  class  is  an  absurdity,  only 
explained  by  the  wickedness  of  human  institutions.  It  is 
an  absurdity  liable  to  indefinite  repetition.  It  indicates 
that  the  point  has  been  reached  below  which  oppression  and 
greed  cannot  go.  The  Creator  of  this  bountiful  order  has 
made    provision    for    the   support,   the   comfort,   and   the 

*  John  Bright,  1865. 
27 


418  CONSUMPTION.  [BOOK  V. 

gratification  of  all  our  kind.  Poor-laws,  permanently 
embracing  in  their  charity  able-bodied  workmen,  simply 
show  that  the  gratification  was  lonu;  since  abandoned ;  that 
comfort  was  afterwards  denied  by  oppressive  requirements 
or  restrictions ;  and  that  now  the  lowest  plane  of  injustice 
has  been  reached,  in  the  inability  of  the  laborer  for  self- 
support.  There  is  no  further  descent ;  nor  have  poor-laws 
any  virtue  to  bring  back  the  right  order  of  things.  The 
great,  the  sole,  regulating  principle  of  economical  life, 
viz.  the  entire  self-sufficiency  of  labor,  has  been  destroyed  ; 
and  nothing  but  laws  returning  labor  to  its  own  full  rights, 
not  affording  it  charity,  can  restore  health  and  harmony. 
There  is  no  proper  ground  for  charity  but  the  inability  to 
labor ;  and,  when  under  the  stress  of  government  injustice 
and  social  falsehood,  it  departs  from  these  limits,  it  begins 
a  wandering  that  has  no  end.  The  pauperism  of  America 
is  the  result  of  accidents,  and  expires  with  its  special 
causes.  The  pauperism  of  Europe  is  the  effect  of  system, 
and  perpetuates  itself. 

England  will  retain  her  million  of  pauper  families ;  her 
other  million  of  families,  suspended  over  pauperism  by  a 
cotton  thread ;  her  three  millions  more,  scantily  subsisted 
and  nourished,  —  until  the  axe  is  laid  by  giant  hands  at  the 
root  of  the  evil. 

The  quackery  of  the  Middle  Ages  applied  herbs  and 
balms,  not  to  the  bleeding  wound,  but  to  the  injurious 
sword.  Such  are  poor-laws  for  pauper  populations.  It  is 
not  poor-laws,  but  rich-laws,  that  are  needed.  The  rela- 
tions of  capital  to  labor,  of  government  to  the  people,  of  the 
soil  to  the  hand,  need  to  be  re-adjusted. 

5th,  In  what  form  should  charity  be  administered  ? 

In  deciding  this  question,  we  shall  find  it  convenient  to 
distinguish  between  two  classes  of  recipients ;  viz.,  perma- 
nent paupers  and  those  occasionally  destitute.  Of  the 
former  class  we  need  hardly  more  than  refer  to  the  alterna- 
tives  of  in-door   or   out-door,   mechanical   or   agricultural 


CHAP.  VI.]  CHARITY  AND   POOR-LAWS.  419 

employment,  of  home-relief  or  poor-house  maintenance. 
The  habits  and  circumstances  of  each  community  must 
determine  the  methods  of  its  charity.  This  class,  being  in 
the  main  composed  of  those  hopelessly  dependent,  does  not 
present  such  perplexing  questions  as  arise,  when,  by  national 
calamities  or  natural  causes,  great  bodies  of  helpful  indus- 
try are  deprived  of  support.  The  famine  of  1693  reduced 
twenty-five  thousand  in  Paris  alone  to  a  starving  condition, 
and  for  a  while  overwhelmed  the  laws  relating  to  mendi- 
cancy. The  great  number  of  persons  now  dependent  on 
government  support,*  throughout  the  Southern  section  of 
the  United  States,  strikingly  illustrate  that  class  of  calami- 
ties which  may  reduce  a  population  almost  to  general 
beggary.  These,  when  they  come,  must  be  promptly  and 
amply  provided  for:  labor  must  be  saved  at  all  expense, 
humanity  out  of  the  question. 

(1)  Such  charity  must  not  be  administered  in  connection 
with  stated  pauperism,  or  in  public  institutions. 

(2)  This  is  the  best  field  for  individual  benevolence, 
unless  the  prostration  of  business  is  so  universal  that 
nothing  but  the  credit  and  authority  of  the  government  can 
intervene. 

(3)  Government  may,  by  foreign  loans  or  other  means, 
remit  the  pressure  of  ordinary  taxation. 

(4)  Government  may  appropriate  the  necessaries  of  life 
for  the  public  good,  if  the  emergency  is  as  great  as  would 
justify  the  same  invasion  of  property  in  war  ;  not  otherwise, 
not  merely  to  save  expense  or  extinguish  speculation. 

(5)  Government  may  very  properly  employ  its  marine 
and  its  finance  in  furnishing  subsistence  promptly,  at  low 
rates,  and  on  easy  terms. 

(6)  Government  may,  in  exceptional  cases,  offer  employ- 
ment on  works  of  public  concern.  This  should  be  done  at 
least  to  the  extent  of  such  enterprises  as  are  in  themselves 
desirable  and  profitable.     The  time  of  general  distress  is 

*  Winter  of  1866-6. 


420  CONSUMPTION.  [book  V. 

the  only  time  in  which  government  can  largely  enter  the 
field  of  industry  without  working  a  considerable  share  of 
disturbance  and  mischief.  All  works  of  manifest  utility 
should  be  undertaken  at  such  a  time.  This  will  cost  less, 
and  be  a  mighty  kindness  to  the  suffering  poor.  Govern- 
ments have  often  proceeded  much  further  than  this,  have 
undertaken  works  that  involved  a  far  greater  expense  to 
itself  than  relief  to  labor,  and  entailed  a  permanent  burden 
on  the  country.  This  was  done  in  Ireland  during  the  great 
famine,  and  has  more  than  once  been  done  in  France.  The 
policy  of  such  employment  is  very  doubtful ;  for,  — 

(7)  Government  should  administer  its  charity  to  the 
necessary  amount  by  direct  personal  assistance,  generally 
of  supplies  in  kind,  through  its  own  local  agencies.  The 
degradation  of  accepting  relief  is,  in  such  cases,  removed 
by  the  universality  of  the  distress.  It  is  the  most  appro- 
priate and  least  costly  remedy.  For  example:  it  is  not  a 
matter  of  question,  that  the  assistance  which  the  United 
States  furnished  during  the  Irish  famine,  in  its  cargoes  of 
provisions  and  clothing,  was  more  sensible  and  effective,  in 
proportion  to  the  expense,  than  the  outlay  of  the  British 
Government  on  useless  roads. 

But  the  occasions  for  such  extraordinary  charity  are  few. 
The  greater  the  freedom  of  intercourse,  the  wider  the 
ramifications  of  trade,  the  quicker  the  sympathies  of  indus- 
try, the  less  frequent  and  the  less  destructive  will  be  all 
local  and  temporary  calamities.  In  the  present  winter, 
when,  by  the  unusual  severity  of  war,  hundreds  of  thou- 
sands of  families  have  been  thrown  on  the  public  support, 
government,  both  State  and  national,  has  adopted,  without 
hesitation  and  without  discussion,  the  most  simple,  eco- 
nomical, and  beneficial  method  of  relief.  There  has  been  no 
loud  outcry  for  grand  public  works.  No  useless  costly  piles 
will  remain  as  tokens  of  this  hard  winter,  and  burdens  to 
every  succeeding  year.  The  hungry  mouths  have  fed  off 
the  hand  of  government,  open  now  in  charity,  as  lately 
clenched  in  wrath. 


CHAP.  VI.]  CHAETTY  AND  POOR-LAWS.  421 

6th,  In  what  spirit  should  charity  be  administered  ? 

In  that  of  kindness  and  respect.  No  condition  of  life 
and  character  is  so  abandoned  that  it  needs  or  deserves 
that  marks  of  ignominy  should  be  attached.  When  the 
murderer,  with  his  bloody  hands,  is  to  be  executed,  the  sen- 
timent of  the  community  shrinks  from  the  idea  of  adding 
insult  to  his  doom.  He  is  treated  among  no  magnanimous 
people  with  contumely  or  outrage.  If  his  manhood  is 
respected,  even  in  his  crime,  should  not  those  who  are  the 
victims  of  misfortune,  or  at  the  worst  of  only  passive  vices, 
be  free  from  more  than  the  disgrace  which  is  necessary  to 
their  condition  ?  It  is  unchristian,  it  is  cowardly,  to  insult 
by  word  or  badge  the  unfortunates  of  society.  No  true 
man  will  do  it :  no  brave  people  will  allow  it  to  be  done. 
The  followers  of  Mahomet  would  not  suffer  a  tattered  bit  of 
paper  to  blow  by  them  or  remain  on  the  ground,  but  would 
reverently  pick  it  up,  lest  it  should  contain  some  fragment 
of  Alcoran.  There  is  no  broken  piece  of  humanity  in  the 
mire  of  poverty  and  crime  on  which  the  proudest  of  earth 
can  place  his  foot,  and  not  crush  God's  image.  Tenderly, 
reverently,  should  we  bear  ourselves  to  all ;  but  to  none  more 
kindly,  more  ourselves  rebuked,  than  to  the  forlorn  and 
helpless. 

Yet  there  should  be  no  weakness  or  paltering  in  charity. 
While  all  harshness  and  contumely  are  avoided,  public 
maintenance  should  never  be  made  desirable  to  the  able- 
bodied  workman,  nor  should  even  the  feeble  be  allowed  to 
escape  just  so  much  of  labor  as  their  condition  permits. 
This  is  justice  to  the  community,  and  kindness  to  the 
unfortunate.  Especially  should  the  public  sense  discourage 
and  banish  that  shameless  and  obtrusive  mendicancy  by 
which  the  bold  and  bad  snatch  away  the  portion  of  the 
weak,  the  honest,  the  retiring  poor.  The  truly  helpless 
and  suffering  should  be  sheltered  under  the  wings  of 
charity ;  the  indolent  and  wasteful,  driven  out  into  the 
storms  of  the  world. 


422  CONSUMPTION.  [BOOK   v. 


CHAPTER  VII. 

I.     THE   FINANCE   OF  WAR. 

The  finance  of  war  is  greatly  perplexed  to  the  popular  mind 
by  one  fallacy,  which  is,  that  a  vastly  greater  amount  of 
money  is  needed  in  time  of  war  than  of  peace.  Bewildered 
by  this  notion,  than  which  none  can  be  more  absurd,  the 
public  are  easily  induced  to  sanction  a  whole  class  of 
measures  that  would  be  generally  recognized  as  injurious  in 
ordinary  times,  but  are  imagined  to  have  some  virtue  to 
bring  out  a  greater  amount  of  money  to  meet  the  supposed 
emergencies  of  war.  The  truth  of  it  is,  if  'we  suppose  no 
extra  importation  of  foreign  material  for  consumption  (and 
nineteen-twentieths  of  the  expenditures  of  all  wars  are  for 
domestic  labor  and  material),  there  is  no  larger  production, 
no  more  commodities  to  be  exchanged,  no  more  services  to 
be  rewarded,  and  consequently  no  more  occasion  for  the  use 
of  money. 

But  government  now  becomes  the  great  operator,  employs 
perhaps  ten  times  its  usual  number  of  agents,  expends  ten 
times  its  usual  resources.  It  then  has  need  of  more 
money :  but  as  it  only  takes  the  place  of  former  employers, 
of  former  consumers,  so  it  only  needs  to  take  their  place  in 
the  receipt  of  money ;  and  that  may  be  effected  by  prompt, 
equal,  and  thorough  taxation,  —  taxation,  too,  conducted  by 
the  established  methods,  and  in  accordance  with  such  prin- 
ciples as  we  have  laid  down.  A  state  of  war,  therefore, 
instead  of  being,  as  it  is  usually  made,  a  reason  for  depart- 
ing from  the  ordinary  rules  of  public  economy,  is  an 
additional  reason  for  adhering  closely  to  them  in  every 
particular. 

War  is  a  business  as  much  as  agriculture.  The  same 
resources  are  necessary :  there  must  be  materials,  provision, 


CHAP.  VII.]  THE   FINANCE   OF  WAR.  423 

tools,  labor.  This  is  all  that  is  needed  in  either ;  nor  is 
there  the  least  difference  in  the  two,  considered  as  modes  of 
production  :  their  principles  and  methods  are  the  same.  It 
is  only  when  considered  as  modes  of  consumption  that  they 
have  separate  relations  to  the  science  of  wealth.  "  Raising 
money  "  has  been  generally  accepted  as  the  great  business 
of  a  nation  in  war ;  but  it  is  no  more  so  than  in  ordinary 
times.  What  is  wanted  is  labor,  tools,  provision,  and  ma- 
terials :  that  is  what  is  to  be  "  raised."  And  at  least  an 
equal  amount,  though  of  different  kinds  and  for  different 
purposes,  is  "  raised  "  every  year  or  day  of  peace.  Govern- 
ment, however,  is  now  the  great  employer ;  and,  as  it  is  to 
furnish  these,  it  must  get  them  from  the  community  which 
has  them,  and  has  been  operating  them.  This,  as  we  said, 
requires  taxation,  but  needs  no  financial  jugglery,  as  is 
supposed ;  and  involves  no  departure  from  ordinary  prin- 
ciples. 

Indeed,  war  might  be  carried  on  without  money ;  has  been, 
to  a  great  extent.  The  public  force  might  always,  as  it 
often  has,  fill  its  armies  by  conscription ;  its  granaries,  by  a 
tax  in  kind  ;  its  arsenals,  by  compulsory  labor.  The  greatest 
armies  the  world  has  ever  seen  were  raised,  supported,  and 
disbanded  without  a  money  chest.  In  the  advance  of 
civilization,  it  has  been  found  more  expedient,  as  it  is  more 
just,  that  government  should  purchase  all  it  consumes  in 
war,  obtaining  the  means  in  money  by  taxation.  But,  as 
war  does  not  increase  the  number  of  laborers  or  augment 
their  power  in  production,  it  remains  true  that  there  can  be 
no  greater  occasion  for  the  employment  of  money,  whose 
only  office  is  to  exchange  the  products  of  labor. 

But  it  may  appear,  that,  if  foreign  labor  (as  mercenary 
'soldiers)  or  foreign  material  (the  products  of  foreign  labor) 
is  introduced,  there  will  be  a  greater  demand  for  money  to 
make  the  exchanges  of  services  and  values.  Of  the  first,  it 
may  be  said,  that  the  employment  of  mercenaries  is,  in  fact, 
too  small  to  be  of  any  account  in  tne  great  calculations  of 


424  CONSUMPTION.  [book  v. 

warlike  expenditures.  The  latter  is  of  importance,  but 
really  forms  a  small  fraction  of  the  actual  outlays  of  Avar, 
probably  not  equal  to  the  reduced  wages  of  domestic  labor 
in  arms,  as  against  the  same  labor  in  peace ;  it  being  true 
of  almost  all  armies,  that  their  pay  is  below  the  average  of 
industrial  occupations.  But,  if  we  allow  all  the  actual 
importation  of  foreign  material  to  be  so  much  added  to  the 
necessity  for  money,  the  effect  will  be  simply  what  has  been 
already  indicated  in  the  philosophy  of  currency.  Money 
will  be  exported  up  to  a  certain  point  to  pay  for  imports  : 
this  will  lower  home  prices,  diminishing  the  domestic  ex- 
penditures of  government,  and  encouraging  the  export  of 
produce,  which  will  continually  tend  to  restore  the  balance. 
Beyond  the  point  at  which  money  cannot  be  sent  off,  with- 
out domestic  distress,  government  must  resort  to  credit  by 
loans.  Such  loans,  however,  cannot  increase  the  money  in 
the  country  ;  for,  even  if  they  first  assume  that  form  abroad, 
they  are  turned  into  material  before  imported.! 

This  discussion,  it  should  be  borne  in  mind,  has  only 
regarded  the  amount  of  money  required  in  war.*  We  have 
had  nothing  directly  to  say  as  to  the  amount  of  capital 
employed.  Of  this  we  express  no  opinion ;  while  we  main- 
tain that  it  is  unquestionably  true,  that  no  greater  volume 
of  money  is  needed  to  effect  all  the  exchanges  incident  to  a 
state  of  war. 

*  For  an  able  discussion  of  the  subject  in  all  its  bearings,  see  "  A  Critical 
Examination  of  our  Financial  Policy,"  by  Simon  Newcomb.  D.  Apple- 
ton  &  Co.,  New  York.    1866. 

t  The  foregoing  argument  is  based  on  the  assumption  that  the  currency  is 
sound  at  the  commencement  of  the  war,  and  a  nation  thus  prepared  for  war. 


CHAP.  VIII.]         ECONOMY   OF   THE   WAR   SYSTEM.  425 

CHAPTER  VIII. 

ECONOMY  OP   THE  WAR   SYSTEM. 

War  is  the  greatest  fact  that  presents  itself  in  this  part 
of  our  general  subject.  Its  consumption,  its  expenditures, 
are  wholly  for  unproductive  purposes,  and  not  only  unpro- 
ductive, but  absolutely  destructive  of  those  by  whose  labor 
wealth  is  produced.  War  demands  by  far  the  largest  part 
of  all  the  revenues  of  civilized  governments  throughout  the 
world.  It  therefore  claims  consideration  as  far  as  our  limits 
will  permit. 

That  war  is  a  political  necessity  while  no  preparation  is 
made  for  preserving  peace,  cannot  for  a  moment  be  denied. 
So  also  were  private  combats  and  the  wager  of  battle  in  by- 
gone ages.  Disputes  will  ensue  between  nations  as  between 
individuals ;  and,  if  no  provision  is  made  for  umpirage  or 
arbitration,  a  resort  to  the  sword  is  inevitable.  Hence  the 
great  system  of  war.  But  for  established  laws  and  courts 
of  justice,  individuals  would,  of  necessity,  be  compelled  to 
seek  redress  for  private  grievances  by  an  appeal  to  brute 
force.  This  would  not,  indeed,  determine  which  of  the  parties 
were  in  the  right,  only  which  was  the  stronger  or  more  fortu- 
nate in  the  struggle.  So  of  nations.  When  differences  arise 
between  them,  how  can  they  be  settled  except  by  a  trial  of 
strength?  There  is  no  well-defined,  well-established  code 
of  international  law ;  there  is  no  tribunal  of  international 
justice :  how  then,  except  in  battle,  can  their  disputes  be 
adjusted  ?  It  is  a  well-established  principle,  that  a  man 
should  not  be  a  judge  in  his  own  case ;  and  therefore,  as 
between  individuals,  it  is  decided,  that,  instead  of  the  wager 
of  battle,  the  aggrieved  party  shall  submit  his  case  to  the 
arbitrament  of  his  fellow-citizens.  But,  as  between  nations, 
no  such  arrangement  has  as  yet  been  made. 

Hence  we   are  to  contemplate  war  as  a  political  neces- 


42G  CONSUMPTION.  [book  v. 

sity,  until  the  nations  of  the  earth  shall  establish  a  code  of 
international  law,  and  institute  a  high  court  of  appeal,  to 
which  their  disputes  shall  be  referred  for  adjudication. 

War,  then,  in  the  sense  in  which  we  are  to  look  at  it,  is 
not  an  accidental  fact,  but  an  established  system ;  and,  as  an 
economical  question,  is  to  be  regarded  from  three  different 
points  of  view. 

1st,  As  consisting  of  a  permanent  military  force,  a  stand- 
ing army,  with  all  the  paraphernalia  of  war  ;  and,  if  the 
nation  be  maritime  in  its  position,  a  naval  force,  somewhat 
proportioned  to  its  military  establishment. 

2d,  A  system  of  constantly  increasing  preparations  for 
war,  —  arsenals,  dockyards,  and  manufactories. 

3d,  A  heavy  indebtedness  for  wars  of  the  past,  with  un- 
ceasing taxation  for  the  payment  of  accruing  interest  and 
the  extension  and  perpetuation  of  the  system. 

These  three  items  may  be  said  to  constitute  the  war  sys- 
tem of  the  civilized  world  at  the  present  day.  Looking  at 
war  in  its  economical  bearings  only,  the  great  feature  that 
presents  itself  is  the  immense  and  constantly  increasing 
expenditures  it  requires. 

In  proof  of  this,  we  first  refer  |o  the  statistics  of  Great 
Britain,  not  because  they  are  peculiar,  but  that  they  are  full 
and  reliable.  Her  naval  and  military  expenditures  from  1815 
to  1865,  during  which  period  of  fifty  years  there  has  been 
no  protracted  war,  have  been  £1,084,330,507,  equal  to 
$5,000,000,000,  or  nearly  twice  as  much  as  the  whole  present 
debt  of  the  United  States:  from  1855  to  1865  inclusive, 
£ 769,612,936,  of  which  £301,618,920  were  required  to  pay 
interest  on  the  national  debt;  .£331,887,258  for  current 
expenses  of  army  and  navy ;  for  the  cost  of  collection, 
£48,733,823  (or  about  six  per  cent  of  the  whole  reve- 
nue) ;  and  only  £105,472,935  for  all  the  expenses  of  civil 
government.  So  that,  in  paying  interest  upon  the  debt 
wholly  created  in  war  and  in  meeting  present  expenses,  the 
war  system  swallowed  up  six  sevenths  of  the  entire  revenue. 


CHAP.  VIII.]  ECONOMY   OF  THE  WAR   SYSTEM. 


427 


The  "Ammaire  Encyclope'dique  "  has  the  following  state- 
ment of  the  armies  of  Europe  for  186-3  :  — 


Russia  .  . 
France  .  . 
Austria  .  . 
Turkey  .  . 
Italy  :  .  . 
Great  Britain 
Prussia  .  . 
Spain  .  . 
Sweden  .  . 
Holland.  . 
Denmark  . 
Belgium .  . 
Romania 
Norway  .  . 
Greece  .  . 
Roman  States 
Servia  .  . 
Switzerland 

*  Total 


Army. 


1,000,285 

513,349 

467,211 

429,000 

314,285 

300.323 

214^82 

120,000 

67,867 

59,431 

50,000 

40,115 

20,000 

18,157 

10,291 

8,845 

2,500 


3,815,217 


Population. 


64,000,000 

37,500, I 

35,019,058 

39,000,000 

21,920,269 

29,193,319 

18,500,446 

15,500,000 

2,855,883 

3,569.486 

2,605,024 

4,671,183 

4,000,000 

1,433,764 

1,096,000 

684,306 

985,000 


$105.29 
20b. is 
144.00 

76.00 
209.79 
446.18 
147.60 
209.20 

50.39 
158.18 

71.37 
160.29 
118.00 

93.00 

99.60 
100.00 

71.39 


5,494,195 


$168.87 


64 
73 
75 
91 

70 

97 

86 

129 

56 

60 

105 

117 

200 

79 

100 

77 

344 


77 


$105,848,000 

137,729,075 

67,310,840 

30,000,000 

65,934,225 

135,485,875 

31,346,730 

25,132,370 

3,417,320 

9,381,580 

3,507,729 

6,450,525 

2,360,000 

1,689,540 

1,084,500 

886,965 

178,880 


$644,283,888* 


But  this  sum  of  $644,283,880  is  but  a  part  of  the  cost. 
If  we  take  the  loss  to  production  to  be  equal  to  $150  for 
each  soldier  (a  low  estimate),  we  shall  find  the  additional 
amount  to  be  five  hundred  and  seventy-two  millions  of  dol- 
lars per  annum. 

The  following  statistics  from  the  muster-roll  of  the 
British  army  show  its  entire  strength  and  composition :  — 

Pensioners 14,768 

Yeomanry 16,080 

Irish  constabulary 12,392 

Volunteers 170,000 

Total  number  of  men  .     .    820,928 

If  from  this  total  amount  we  deduct  about  270,000  for  the 
constabulary,  the  militia,  volunteers,  &c,  we  have  550,000 
men,  as  the  non-productive  force  required  by  the  war 
establishment  of  Great  Britain. 

*  The  Report  of  the  Secretary  of  the  United-States  Treasury  for  1863 
showed,  that  there  was  expended  for  the  army  8747,359,828,  and  for  the 
navy  $82,177,510 ;  total,  §829,532,838,  or  about  thirty-three  per  cent  more 
than  all  the  war  expenditures  of  Europe  for  that  year. 


.    218,971 

.      18,249 

Foreign  and  colonial  .     . 

.     218,043 

Indian  military  police     . 

.       79,284 

Depot  establishments 

.       28,141 

428  CONSUMPTION.  [book  v. 

The  following  is  a  statement  of  the  national  debt  of  each 
of  the  nations  mentioned :  — 

Great  Britain  (1862) £  800,000,000,  equal  to  $4,000,000,000 

France  (1865) Francs,  11,902,000,000,  „  „  2,380,000,000 

Austria  (1860) Florins,  2,360,000,000,  „  „  1,120,000,000 

Spain  (1864) Reals,  14,531,000,000,  „  „  726,000,000 

Russia  (1861) Roubles,  418,000,000,  „  „  300,000,000 

Prussia  (1862) Thalers,  301,000,000,  „  „  215,000,000 

Portugal  (1862) Milreis,  149,000,000,  „  „  168,000,000 

Turkey  (1864) £  31,000,000,  „  „  155,000,000 

Belgium Francs,  655,000,000,  „  „  131,000,000 

Denmark Rix-dollars,    95,000,000,  „  „  53,000,000 

$9,248,000,000 
If  the  debts  of  all  other  European  powers  may  be  estimated  at    .    .         752,000,000 

We  have  a  total  of $10,000,000,000 

To  this  we  add  the  debt  of  the  United  States  (say) 2,750,000,000 

Grand  war  total $12,750,000,000 

The  following  table,  which  we  take  from  the  "  Financial 
Reformer"  (British),  is  more  impressive  than  any  statements 
we  could  make  in  regard  to  the  expenses  of  the  war  system 
in  England,  and  the  small  proportion  required  for  the  civil 
department  of  the  government :  — 

From  1834  to  1861  inclusive  (nineteen  years)  the 

total  expenditure  was £1,125,689,474 

For  army £226,084,027 

For  navy 177,654,537 

Operations       ....      16,164,290 

£419,902,854 

Interest  and  charges  on  the  debt  .     .    546,400,540 

Total  for  fighting  purposes  and  debt 966,303,394 

Leaving  for  all  other  purposes £159,386,080 

Hence  it  appears  that  there  was  ex- 
pended during  this  period  for  war, 
preparations  for  war,  and  debt,  a  con- 
sequence of  war,  an  average,  every 
year,  of £50,858,073 

And  for  civil  government 8,388,741 

Difference £42,469,332  per  annum. 


CHAP.  VIII.]  ECONOMY  OF  THE  WAR   SYSTEM.  429 

Another  important  point  to  be  noticed  in  relation  to  the 
war  expenditures  of  European  nations  is,  that  they  have 
been  constantly  increasing,  and  at  a  fearful  rate. 

The  increase  of  taxation  in  England  between  1863  and 
1865  was  fifteen  millions  sterling  per  annum  over  the 
previous  decade. 

The  cost  of  the  army,  navy,  and  ordnance  combined, 
in  1835,  was  less  than  twelve  millions  ;  in  1850,  it  was  fif- 
teen millions ;  in  1861,  it  had  increased  to  thirty  millions 
sterling.  Mr.  Gladstone  stated  in  1861,  that  "  the  total 
expenditure  (imperial  and  local)  had  grown  nearly  twenty 
million  pounds  in  the  space  of  seven  years ;  and  that,  taking 
the  annual  savings  of  the  country  of  £50,000,000,  the 
whole  interest  of  eight  years'  accumulation  was  absorbed 
and  swallowed  up  in  this  expenditure." 

Mr.  Laing,  Ex-Finance-Minister  of  India,  in  a  late  lecture, 
said  that  "  the  national  debt  of  France  had,  in  ten  years, 
increased  £150,000,000,  while  that  of  Austria  and  Italy 
had  increased  £68,000,000.  Spain  was  at  its  wits'  end  to 
make  both  ends  meet ;  while  Turkey  was  knocking  at  the 
doors  of  every  banker  in  Europe,  ready  to  accept  any  thing 
from  any  body  who  was  ready  to  lend  them,  on  any  terms. 
.  .  .  During  the  last  ten  years,  there  had  been  an  extra 
expenditure  of  £300,000,000,  incurred  by  two  great  Euro- 
pean wars  ;  £300,000,000  more  added  by  minor  wars  and 
an  armed  peace." 

Mr.  Gladstone  has  made  the  following  statement,  — "  that, 
between  the  years  1842  and  1853,  the  income  of  the  wealth 
of  this  country  (Great  Britain)  was  at  the  rate  of  twelve, 
and  that  her  expenditures  were  at  the  rate  of  8|,  per  cent ; 
while,  between  1853  and  1859,  the  national  wealth  grew  at 
the  rate  of  16|-,  while  the  national  expenditure  was  at  the 
rate  of  58,  per  cent." 

Such,  then,  is  the  condition,  not  only  of  England,  but  of 
all  the  European  powers  ;  and  the  United  States  of  America 
are  now  to  be  placed  on  the  same  level.     All  have  an  im- 


430  consumption.  [book  V. 

mense  indebtedness,  the  interest  upon  which  consumes  a 
large  part  of  their  current  revenue.  Each  finds  its  annual 
budget  increasing  at  a  fearful  rate  ;  each  finds  itself  obliged, 
under  the  present  competition  in  armaments,  to  expend  an 
increasing  sum,  from  year  to  year,  for  warlike  preparations 
by  land  and  sea. 

These  facts  should  be  kept  distinctly  in  mind,  when  we 
look  at  the  economic  bearings  of  the  war  system  of  the 
present  day  ;  and  it  should,  moreover,  be  remembered,  that 
they  apply  generally  to  that  system  as  it  existed  prior  to 
the  civil  war  between  the  American  States.  But  that  con- 
flict greatly  changed  the  war  system  of  the  world  :  it  per- 
haps would  not  be  extravagant  to  say,  that  it  revolutionized 
naval  warfare.  In  November,  1861,  the  British  Government 
had,  in  process  of  building,  fifty-four  steamships  of  war, 
with  a  tonnage  95,855,  with  10,930-horse  power,  and  1,254 
guns.  On  the  8th  of  March  following,  the  Confederate 
mm  "  Merrimack"  appeared  in  Hampton  Roads,  and  in  a  few 
minutes,  with  its  formidable  prow,  sent  to  the  bottom  the 
"  Congress"  and  the  "  Cumberland,"  two  of  the  finest  vessels 
in  the  navy  of  the  United  States,  and  demonstrated  that,  in 
the  future,  no  reliance  could  be  made  upon  wooden  vessels 
in  naval  warfare.  This  great  fact  disposed  of  "  toooden 
ivalls."  On  the  next  day,  the  "  Monitor,"  with  her  turret,  en- 
tered the  Roads,  engaged  the  "  Merrimack,"  and  she,  in  her 
turn,  fell  before  a  new  and  still  more  powerful  enginery. 
Iron  sides  were  no  sufficient  protection  against  the  turret. 
This  was  the  second  important  fact ;  and,  together,  they 
turned  the  whole  current  of  preparation  for  naval  warfare 
in  a  new,  ay  and  much  more  costly,  direction. 

These  considerations  have  most  important  economic  bear- 
ings ;  but  their  political  significance  is  still  greater.  In  the 
first  place,  they  destroyed  the  vast  supremacy  which  Eng 
land  had  held  up  to  that  time.  Her  previous  preparations 
and  accumulations  of  war-ships  were  almost  annihilated  at  a 
blow ;  and  the  nations  were  thus  left  to  commence  together 


CHAP.  VIII.]  ECONOMY   OF  THE  WAR  SYSTEM.  431 

a  new  race  of  competition.  In  the  second  place,  the  im- 
mense appropriations  hitherto  made  for  naval  purposes  must, 
if  the  competition  is  to  be  kept  up,  be  increased  tenfold ; 
and  since,  as  we  have  just  shown,  all  the  principal  nations 
of  the  civilized  world  are  deeply  involved  in  debt,  it  becomes 
a  very  grave  and  embarrassing  question,  by  what  means, 
and  out  of  what  resources,  all  these  new  expenditures  are 
to  be  met.  Besides,  the  question  may  well  be  started, 
whether  invention  and  discovery  in  regard  to  military  and 
naval  engineering  and  architecture  have  arrived  at  their 
ne  plus,  so  that  there  is  no  danger  that  all  these  now  ex- 
traordinary means  of  destruction  will  not  be  superseded  by 
others  as  much  in  advance  of  these  as  Enfield  rifles  are 
in  advance  of  the  old  flint  firelocks.  Such,  fortunately  or 
unfortunately,  is  the  condition  and  aspect  of  the  war  system 
to-day.  To  the  political  economist,  as  well  as  the  practical 
statesman  and  financier,  it  must  be  a  matter  of  serious 
consideration  whether  the  time  has  not  come  when  new  and 
improved  ideas  of  international  intercourse  are  not  quite  as 
desirable  as  new  engines  of  human  destruction  ;  whether 
the  important  events  to  which  we  have  referred,  do  not  sug- 
gest a  different  policy  from  that  which  has  prevailed  in  the 
past. 

To  take  the  United  States  as  an  example  :  The  national 
debt,  when  consolidated,  will  not  be  less  than  three  billions, 
the  interest  of  which  will  be  at  least  one  hundred  and  eighty 
millions.  To  this  must  be  added  the  vast  pension  list  which 
a  four-years'  war  has  created.  To  this  still  is  to  be  added 
the  immense  amount  which  is  sure  to  be  awarded  for  claims 
on  the  government  for  spoliations  and  damages  occasioned 
by  the  operations  of  war.  And  if  we  are  to  enter  into  com- 
petition, under  the  present  policy,  for  iron-clads,  monitors, 
land  fortifications,  and  standing  armies,  we  must  have  an 
enormous  addition  to  our  current  expenses.  Of  necessity 
there  must  be  a  very  heavy  and  constant  taxation  to  meet 
all  this,  and  that,  too,  with  no  prospect  of  paying  off  the  debt. 


432  CONSUMPTION.  [hook  v. 

The  war  debts  of  modern  times  arc  not  paid  off,  and  never 
will  be,  until  the  policy  of  increasing  preparations  for  war 
is  discontinued.  But  the  condition  of  the  United  States 
in  this  regard,  as  we  have  already  shown,  is  the  condition 
of  Christendom  ;  and  therefore,  if  a  change  is  to  be  brought 
about,  all  are  alike  interested,  and  must  unite  in  effecting  it. 

We  have  said,  that,  under  existing  circumstances,  war 
may  be  a  political  necessity ;  but  is  it  a  moral  necessity  ? 
Is  there  any  thing  in  the  nature  of  man  which  makes  the 
destruction  of  his  fellow-men  in  war  unavoidable?  Is  it 
not  as  feasible  and  as  consistent  with  his  nature  to  dispense 
with  appeals  to  brute  force  amongst  different  communities, 
as  between  different  individuals  in  those  communities  ? 
Would  not  the  same  principle,  the  same  common  sense, 
which  establishes  a  court  of  justice  for  the  settlement  of 
private  disputes,  establish  a  similar  tribunal  for  the  settle- 
ment of  international  differences  ? 

If  it  is  indispensable  to  the  preservation  of  peace  amongst 
individuals,  that  there  be  a  well-defined  code  of  laws,  which 
all  may  understand,  and  all  must  be  required  to  obey,  is  it 
not  equally  indispensable  amongst  different  communities  ? 

At  present,  as  we  have  said,  there  is  no  established  code 
of  international  law,  or  any  common  tribunal  for  the  settle- 
ment of  international  disputes.  Is  the  attainment  of  these 
admittedly  important  objects  practicable  ?  In  what  manner 
can  they  be  secured  ?  Evidently  in  the  same  way  in  which 
all  social  institutions  are  formed  ;  viz.,  by  the  voluntary, 
harmonious  action  of  those  who  are  directly  concerned. 
And  this  can  only  be  secured  by  concerted  and  concentrated 
effort.  "  Concentration,"  says  M.  Guizot,  "  is  the  highest 
element  of  civilization."  The  parties  must  come  volunta- 
rily together ;  must  consult  upon  their  mutual  interests  ;  in 
short,  there  must  first  be  a  general  international  convention, 
or  congress.  This  is  a  necessary  preliminary.  Is  it  feasi- 
ble ?  Can  the  human  mind  achieve  tliis  advanced  step  to  a 
higher  condition  ? 


CHAP.  VIII.]  ECONOMY   OF  THE   WAR   SYSTEM.  433 

We  answer  these  questions,  without  hesitation,  in  the 
affirmative,  and  for  the  following  reasons :  — 

First,  Because  the  present  system  is  at  war  with  the 
plainest  dictates  of  common  sense,  and  the  highest  interests 
of  mankind. 

It  may  be  safely  assumed,  that  any  system,  policy,  or  prac- 
tice, which,  in  the  course  of  events  and  the  lapse  of  time, 
has  become,  not  only  absolutely  useless,  but  positively  per- 
nicious and  absurd,  cannot  long  continue ;  that  the  advan- 
cing tide  of  intelligence  will  sweep  it  away  as  the  rubbish  of 
the  past. 

FOLLY   OF  RIVAL   ARMAMENTS. 

Each  nation,  as  we  have  seen,  has  its  standing  army,  its 
navy,  fortifications,  dockyards,  arsenals,  &c,  &c. ;  and, 
consequently,  each  is  endangered  by  the  military  and  naval 
preparations  of  every  other,  and  they  live  in  constant 
mutual  jealousy.  Hence,  if  it  is  known  or  suspected  that 
France  is  making  an  addition  to  her  navy,  England  at  once 
makes  as  large  or  larger  one  to  hers.  And,  having  done 
this,  is  either  any  safer  than  before  ?  Are  not  both  as  rela- 
tively defenceless  as  ever  ?  But  France  lays  down  still  other 
keels,  and  the  dockyards  of  England  are  again  in  motion, 
until  the  fleets  of  both  are  yet  further  enlarged ;  but  has 
the  relative  condition  of  either,  as  to  security,  been  im- 
proved ?  Has  not  each  increased  its  means  of  aggression  as 
well  as  defence? 

That  which  is  true  of  France  and  England  is  true  of  all 
the  nations  of  Christendom.  Russia  does  her  utmost  to 
create  a  vast  navy.  Austria,  Prussia,  Turkey,  Sweden,  do 
all  in  their  power  to  prepare  for  war,  however  great  the  bur 
den  and  sacrifice.  And  yet  does  this  general  system  of 
mutual  armaments  make  them  any  more  safe,  respectively, 
than  if  no  such  preparations  were  made  by  either  ?  If  this 
question  must  be  answered  in  the  negative,  is  not  the  arrant 
folly  of  the  system  fully  demonstrated  ? 

28 


-t^4  CONSUMPTION.  [BOOK    V. 


CHANGES  IN   WAR  ARMAMENTS. 

Secondly,  Because  the  changes  to  which  we  have  already 
referred,  that  are  continually  taking  place  in  the  machinery 
of  war,  are  so  great  and  frequent  as  to  forbid  all  hope  that 
nations  can  ever  be  fully  prepared  for  war.  We  need  not 
dwell  upon  this  point ;  for  its  importance  is  obvious  to  any 
one  who  looks  for  a  moment  at  the  subject.  What  terrible 
engines  of  destruction,  what  unheard-of  forces,  are  yet  to  be 
brought  into  use  for  the  destruction  of  mankind  ? 

The  mind  stands  aghast  at  the  awful  possibilities  of  the 
future,  if  the  present  senseless  and  inhuman  competition 
in  war  preparations  is  to  be  continued.  The  moral  sense 
of  the  world  revolts  at  the  thought  of  such  stupendous  folly 
and  crime. 

INFLUENCES   ADVERSE   TO   WAR. 

A  third  consideration  which  leads  us  to  expect  that  the 
present  war  system  will  be  superseded  by  a  general  confed- 
eration for  the  preservation  of  peace,  is,  that  all  the  influ- 
ences of  the  age  are  against  its  barbarities. 

(a)  Commeree,  as  well  as  common  sense,  makes  a  strong 
plea  in  favor  of  peace.  Extending  with  almost  inconceiva- 
ble rapidity,  its  influence  is  every  day  advancing,  and  its 
interests  becoming  more  identified  with  the  harmony  of  na- 
tions. No  stronger  illustration  of  this  was  ever  afforded 
than  that  presented  by  the  war  of  the  Rebellion  in  the 
United  States.  Although  a  civil  war,  confined,  of  course, 
within  the  territories  of  our  government,  it  deranged,  to  a 
wonderful  extent,  the  commerce  of  the  world.  How  tre- 
mendous its  effect  upon  European  industry  !  How  rapidly 
did  it  transfer  the  wealth  of  Europe  to  India  and  other 
Eastern  nations !     How  severely  did  it  affect  the  commerce 


CHAP.  VIII.]  ECONOMY  OF  THE  WAR   SYSTEM.  435 

of  the  United  States,  driving  nearly  half  of  it  from  the 
ocean  in  the  short  period  of  three  years ! 

But  how  circumscribed  were  the  effects  of  that  conflict  to 
what  would  be  felt,  should  a  war  arise  between  Great  Britain 
and  the  United  States  !  In  such  an  event,  how  painful  and 
wide-spread  would  be  the  devastation  to  the  commerce  of 
the  two  most  commercial  nations  on  the  face  of  the  globe  ! 
How  terrible  the  results  to  trade  and  industry  in  every  part 
of  the  earth  !  Yet  no  preparation  is  being  made  to  prevent 
the  occurrence  of  such  a  calamity ;  but  every  thing  is  done 
to  make  it  as  destructive  and  ruinous  as  possible,  should  it 
take  place.  It  does  not  seem  reasonable  to  suppose  that 
such  a  state  of  things  can  be  permanent ;  that  all  the  great 
social,  moral,  and  material  interests  of  mankind  can,  in  the 
present  advanced  period  of  intelligence,  be  allowed  much 
longer  to  be  thus  imperilled. 

(ft)  The  rapidly  increasing  intercourse  by  travel  between 
the  different  peoples  is  making  them  more  acquainted  with 
each  other,  and  dissipating  much  of  that  ignorance  and  prej- 
udice which,  in  times  past,  has  been  a  prolific  source  of 
jealousy  and  distrust. 

(e)  The  education  of  the  masses,  their  gradual  progress 
in  knowledge,  and  their  growing  influence  in  public  affairs, 
is  another  very  hopeful  indication.  The  people  are  being 
enlightened,  and  are  becoming  too  "  wise  "  to  be  made  the 
dupes  of  a  system  of  which  they  are  the  greatest  victims.* 

(ef)  The  neutralization  of  the  Black  Sea,  by  the  treaty 

*  It  may  perhaps  be  expected,  that  we  should  mention  "the  onward  pro- 
gress of  the  gospel "  as  one  of  the  influences  adverse  to  war :  but  we  are 
indisposed  to  enter  upon  the  theological  question,  whether  Christianity 
condemns  war  as  sinful;  and,  consequently,  as  we  cannot  assume  that  it 
does  so,  can  make  no  argument  as  to  its  influence  in  preventing  war. 
Christianity,  certainly,  has  no  direct  tendency  to  abolish  any  system  which 
it  does  not  positively  condemn,  still  less  any  practice  which  it  openhr  sanc- 
tions and  approves.  We  have  our  individual  opinion,  that  war  is  not  in 
accordance  with  the  teaching  and  example  of  the  great  Founder  of  Christian- 
ity, but  shall  not  moot  the  question  here.  We  prefer  to  look  only  at  the 
economical,  political,  and  social  bearings  of  the  subject 


436  CONSUMPTION.  [BOOK   V. 

made  at  Paris,  1856,  at  the  conclusion  of  the  war  of  the 
Crimea,  is  a  very  significant  fact,  as  connected  with  dis- 
armament and  the  permanent  peace  of  the  world.  By  that 
treaty,  the  parties  agreed  that  no  ships  of  war  should  enter 
the  Black  Sea,  but  that  its  waters  should  be  sacred  to  peace- 
ful commerce.  This  was  the  introduction  of  a  new  princi- 
ple into  European  diplomacy,  although  the  idea  had  before 
been  adopted  in  the  Treaty  of  Ghent,  made,  in  1815,  between 
Great  Britain  and  the  United  States,  which  contained  a 
provision,  that  the  great  lakes,  lying  between  the  territories 
of  the  contracting  parties,  should  be  neutralized,  and  neither 
party  build  fortifications  or  maintain  a  naval  force  upon 
them.  This  treaty  has  been  observed  down  to  the  present 
time,  upwards  of  fifty  years,  to  the  great  advantage  of  both 
parties. 

The  argument  suggested  by  these  two  facts  is,  that,  if  the 
neutralization  of  the  American  lakes  and  the  Black  Sea  is 
found  so  feasible  and  beneficial,  the  same  principle  might, 
with  still  greater  advantage,  be  extended  to  all  the  seas 
and  oceans  on  the  globe. 

A  CONGRESS   OF  NATIONS   PROBABLE. 

But  our  fourth  reason  for  expecting  that  the  great  object 
of  disarmament  will  be  accomplished,  arises  from  the  con- 
sideration that  public  sentiment  has  been  evidently  turned 
in  that  direction  for  the  last  fifty  years,  and  much  has 
actually  been  done  towards  bringing  the  subject  directly 
before  the  different  nations. 

(a)  Associations  have  existed  for  a  long  time,  whose 
object  has  been  to  bring  about  permanent  and  universal 
peace  ;  and  one  of  the  prominent  measures  insisted  upon 
as  necessary  to  this  end,  has  been  a  congress  of  nations. 
To  bring  this  idea  distinctly  before  the  public  mind,  an 
international  Peace  Congress  was  held  in  London,  in  1843 ; 
in  Brussels,  in  1848 ;  in  Paris,  in  1849 ;  in  Frankfort,  in 


CHAP.  VIII.]  ECONOMY   OP  THE  WAR  SYSTEM.  437 

1850 ;  in  London,  in  1851 ;  besides  several  other  general 
convocations  in  regard  to  the  same  subject.  At  all  these, 
the  prominent  idea  has  been  the  establishment  of  a  general 
congress,  organized  by  the  representatives  of  all  the  states 
of  Christendom. 

The  result  of  these  movements  has  been  to  awaken  an 
interest  in  the  public  mind  in  relation  to  this  subject. 

(5)  In  addition  to  these  voluntary  and  merely  philan- 
thropic efforts,  the  question  was  distinctly  presented  in  the 
British  House  of  Commons  by  the  late  Mr.  Cobden,  who 
took  great  interest  in  the  movement,  and  had  perfect  faith 
in  its  ultimate  success. 

So  far  back  as  June,  1851,  this  distinguished  member  of 
Parliament  moved,  "  That  an  humble  address  be  presented 
to  Her  Majesty,  praying  that  she  will  direct  the  Secretary 
of  State  for  Foreign  Affairs  to  enter  into  communication 
with  the  government  of  France,  and  to  endeavor  in  future 
to  prevent  that  rivalry  of  warlike  preparations  in  time  of 
peace  which  has  hitherto  been  the  avowed  policy  of  the  two 
nations  ;  and  to  promote,  if  possible,  a  mutual  reduction 
of  armaments." 

Lord  Palmerston  expressed  his  high  approval  of  the 
motion,  and  said,  "  I  am  glad  the  honorable  member  has 
taken  advantage  of  the  meeting  of  the  world  (the  Great 
Exhibition),  to  declare  in  his  place  in  Parliament  those 
principles  of  universal  peace  which  do  honor  to  him  and 
the  country  in  which  they  are  proclaimed."  Yet  his  lord- 
ship objected  to  being  "  bound  into  negotiations  ; "  and,  of 
course,  nothing  was  ever  done. 

(c)  A  still  more  encouraging  fact  is  found  in  the  action 
of  the  French  emperor  in  relation  to  this  matter.  Placed 
at  the  head  of  the  most  military  nation  in  Europe,  he  pro- 
posed a  congress  to  devise,  amongst  other  measures,  the 
means  of  reducing  those  enormous  standing  armaments 
which  are  the  curse  and  peril  of  the  world. 

This  proposal  England  alone,  of  all  the  governments  of 


488  CONSUMPTION.  [book  v. 

Europe,  declined.  The  Emperor  of  Russia,  in  his  reply- 
to  the  invitation  of  the  French  Emperor,  said :  "  A  loyal 
understanding  between  the  sovereigns  has  always  appeared 
to  me  desirable.  I  should  be  happy  if  the  proposition  issued 
by  your  majesty  should  lead  to  it."  The  King  of  Prussia 
replied,  "  In  such  a  work  I  will  join  with  all  my  heart, 
and  in  perfect  liberty  only  to  consult  my  own  solicitude  for 
the  general  interest  of  Europe."  The  King  of  Italy  said : 
"  I  adhere  with  pleasure  to  the  proposal  of  your  imperial 
majesty.  My  concurrence  and  that  of  my  people  are  as- 
sured to  the  realization  of  this  project,  which  will  mark  a 
great  progress  in  the  history  of  mankind." 

The  King  of  Norway  and  Sweden,  the  King  of  Denmark, 
the  King  of  the  Netherlands,  the  King  of  the  Belgians,  the 
Queen  of  Spain,  the  King  of  Bavaria,  the  King  of  Hanover, 
the  Pope,  the  Germanic  Confederation,  the  Kings  of  Sax- 
ony, Wurtemburg,  and  Greece,  all  replied  to  those  pacific 
proposals  of  the  French  Emperor  in  terms  of  high  and 
cordial  approbation. 

(<f)  The  public  press  in  Europe  has  also  spoken  very 
strongly  in  favor  of  disarmament. 

The  subject  is  thus  referred  to  in  the  Paris  journal, 
"  La  France :  "  —  "  Now  let  us  for  a  moment  suppose,  that 
by  an  understanding  with  the  great  powers,  a  disarming 
in  the  proportion  of  one-half  was  effected.  Immediately, 
1,907,924  men  of  twenty  to  thirty-five  years  of  age,  consti- 
tuting the  flower  of  the  population  of  that  age,  are  restored 
to  the  labors  of  peace,  and  at  once  a  saving  of  three  hundred 
and  twenty  million  dollars  is  effected  in  the  totality  of  the 
annual  European  budgets  ;  with  that  sum  Europe  might 
add,  each  year,  to  the  railways  at  present  existing,  six 
thousand  two  hundred  and  fifty  miles.  She  might  estab- 
lish in  every  commune,  and  even  in  each  section  of  the 
communes,  a  primary  school.  These  great  improvements 
once  realized,  she  might,  if  she  decided  in  maintaining  the 
same  sum  in  her  budget,  apply  it  to  the  payment  of  the  pub- 


CHAP.  VIII.]  ECONOMY   OF  THE  WAR   SYSTEM.  439 

lie  debt.  The  annual  interest  upon  the  debts  of  the  different 
European  states  being  about  four  hundred  and  sixty-five 
millions  of  dollars,  they  might  be  paid  off  in  about  thirty- 
six  years.  If,  on  the  contrary,  the  countries  interested 
preferred  applying  the  four  hundred  and  sixty-five  millions 
thus  saved,  to  the  reduction  of  those  taxes  which  weigh 
most  heavily  on  the  production  or  consumption  of  articles 
of  necessity,  what  an  alleviation  to  the  people,  and  what  a 
stimulus  it  would  give  to  business !  The  labor  of  these 
1,907,924  men,  at  only  two  francs  (about  forty  cents  United- 
States  currency)  per  day,  would  amount  to  about  $1,500,- 
000,000  per  annum." 

The  "  Journal  des  Debats,"  of  Dec.  14,  1864,  says  :  — 
"  The  immense  majority  of  the  intelligent  inhabitants  of 
Europe  have  pronounced  a  preference  for  peace  rather  than 
war,  for  economy  rather  than  enormous  budgets,  for  pro- 
ductive rather  than  unproductive  outlays ;  and  yet  the 
attitude  of  nations  would  lead  one  to  believe  that  war  is 
possible  and  imminent,  for  on  every  side  the  system  of 
great  armaments  devouring  so  much  capital  is  persisted 
in."  —  "La  Presse"  says:  "Disarming  is  the  order  of  the 
day  in  Italy,  is  in  course  of  realization  in  Austria,  and, 
being  proposed  by  the  Palmerston  ministry,  has  formed  the 
subject  of  discussion  in  the  English  journals.  Spain  is 
thinking  of  reducing  the  number  of  men  in  her  army  and 
navy,  thanks  to  the  still-increasing  probability  of  a  Euro- 
pean congress,  the  present  necessities  for  which  begin  to 
popularize  the  Utopian  character  of  the  scheme.  .  .  .  "We 
are  pleased  with  the  transformation :  it  is  the  outset  of  a 
prosperous  career ;  it  is  the  triumph  of  a  truly  great  policy. 
It  is  not  the  congress  itself,  but,  as  a  Spanish  journal  said 
a  few  days  since,  it  is  the  preface  to  the  congress." 

In  view  of  the  encouraging  facts  we  have  presented, 
does  it  not  seem  highly  probable  that  a  general  congress  of 
nations  will  not  be  delayed  much  longer  ?  The  necessity 
for  such  an  institution,  in  an  economical  and  commercial 


440  CONSUMPTION.  [book  V. 

point  of  view,  is  becoming  every  day  more  apparent  and 
pressing.  The  matter  rests  entirely  with  the  three  princi- 
pal nations  of  the  world,  —  Great  Britain,  France,  and  the 
United  Status  of  America.  They  have  the  power  to  do  as 
they  will.  Acting  in  concert,  their  influence  is  irresistible, 
and  they  can  achieve  any  object  that  commends  itself  to  the 
common  sense  of  mankind.  There  is  no  adverse  interest 
in  the  case,  and  it  is  only  requisite  that  some  one  of  the 
great  powers  should  take  the  initiative.  True,  the  French 
Emperor's  proposal  failed ;  but  the  condition  of  the  world 
has  greatly  changed  since  it  was  made.  The  American 
Union  has  been  restored,  republicanism  has  been  vindicated, 
the  barbarism  of  slavery  abolished,  and  the  civilization  of 
the  world  has  received  a  powerful  impetus. 


CHAPTER  IX. 

ON  THE  ECONOMY  OP  PUBLIC  EDUCATION. 

It  is  difficult  for  Americans  to  sympathize  in  the  least  with 
the  objection  which  is  made  in  England,  even  by  those  dis- 
tinguished for  liberal  sentiments,  that  compulsory  education 
is  a  breach  of  the  liberty  of  the  subject.  Our  incapacity  for 
understanding  or  even  respecting  that  sentiment  arises  from 
the  fact  that  such  education  was  early  made  one  of  the 
foundations  of  our  social  and  political  organization,  and  we 
have  grown  up  to  regard  it  as  an  accepted  principle  of  good 
government.  Our  intolerance  of  the  English  theory,  how- 
ever, is  not  helped  by  the  consideration  that  their  own  state 
makes  the  support  of  a  particular  religion  compulsory  on 
all  inhabitants. 

This  is  not  the  place  to  discuss  whether  legal  provision 
for  the  instruction  of  youth  is  an  invasion  of  that  field 
which  is  recognized,  in  all  governments  moderately  free,  as 


CHAP.  IX.]  ECONOMY  OP   PUBLIC  EDUCATION.  441 

belonging  to  personal  rights ;  but  it  may  not  be  inappro- 
priate to  remark,  in  passing,  that  the  period  to  which 
compulsion  is  applied  in  this  matter  is  that  which  cannot, 
for  a  moment,  by  any  rational  philosophy,  be  contemplated 
as  capable  of  liberty.  It  is  the  period  of  youth  to  which 
restraint  always  attaches.  Nor  can  it  be  urged  that  such 
compulsory  instruction  is  a  breach  of  the  rights  of  parents  ; 
for  their  rights  are  not  perfect  and  primary,  but  depending 
on  the  gift  of  the  state,  which  can  resume  the  functions  of 
control  in  any  degree  for  the  public  good. 

The  economic  results  of  public  education  are  manifestly 
in  two  directions. 

1st,  It  is  intended  to  effect  the  prevention  of  pauperism 
and  crime.  To  use  a  popular  American  phrase,  "  It's 
cheaper  to  build  schoolhouses  than  jails."  In  looking  at 
this  matter,  we  need  to  take  a  view  between  that  of  the 
optimist  who  expects  the  extinguishment  of  sin  and  vice  by 
the  advance  of  knowledge,  and  that  of  certain  grossly 
material  philosophers  who  compose  statistical  tables  to  prove 
that  general  enlightenment  rather  encourages  crime.  The 
first  notion  is  refuted  all  too  quickly  by  sad  experience.  We 
may  fairly  decline  to  consider  the  latter  till  it  receives  the 
sanction  of  one  practical  statesman.  Such  is  the  theory  of 
our  government  on  public  education.  We  will  not  argue 
this.  We  will  say  that  it  is  an  Americanism  to  rely  on 
general  instruction  to  check  the  grosser  inclinations  of 
society,  refine  its  manners,  foster  its  self-respect,  and  multi- 
ply its  restraints. 

2d,  Public  education  is  intended  to  bring  about,  posi- 
tively, a  higher  economical  condition. 

It  is  mind  that  gives  man  power  over  the  brute  creation ; 
and  it  is  by  enlarging  and  instructing  the  mental  power  that 
the  greatest  possible  factor  is  introduced  into  his  effort. 

We  do  not  speak  now  of  the  education  of  the  laborer  in 
art  or  science  for  their  own  sake,  but  solely  for  his  advance- 
ment as  an  individual  being ;  nor  do  we  refer  now  to  the 


442  CONSUMPTION.  [book  v. 

indirect  influence  on  social  order  and  national  power,  en- 
larging the  desires,  stimulating  the  activities,  and  promoting 
the  frugality  of  a  people.  We  allude  only  to  the  education 
of  all  who  labor,  whether  as  masters  or  apprentices,  inventors 
or  drudges,  governors  or  soldiers,  in  order  that  they  may 
more  intelligently  and  efficiently  discharge  their  parts  in 
production. 

It  pays  to  do  so.  A  few  years  of  boyhood  spent  in  prac- 
tical studies  has  taken  many  a  man  out  of  the  class  of  day 
laborers,  and  placed  him  among  those  who  superintend 
the  work  of  hundreds,  or  by  scientific  discovery  multiply 
the  power  of  industry  manifold.  Nor  is  it  alone  in  these 
marked  cases  that  a  fortunate  result  has  appeared.  It  is 
perfectly  practicable  in  any  country  to  raise  the  whole  body 
of  the  people  one  distinct  grade  in  industrial  character ;  to 
make  every  hand  and  every  eye  more  strong  and  accurate, 
while  giving  to  each  the  repeating  power  of  mind. 

The  two  modern  communities  which  earliest  connected 
a  general  education  with  the  agencies  of  government  were 
Scotland  and  New  England.  In  each,  the  advance  of  local 
industry,  and  consequently  of  wealth  and  social  power,  has 
exhibited  most  strikingly  the  economical  advantages  of  such 
a  system.  But  it  was  when  the  inhabitants  of  these  regions 
went  abroad  to  engage  in  the  industry  of  foreign  countries 
that  the  triumph  of  public  education  became  complete  and 
conspicuous.  For  more  than  a  century,  their  intelligent  labor 
has  reaped  the  richest  harvests  of  the  world.  Not  to  speak 
of  social  and  civil  honors,  the  Yankee  and  the  Scot  has 
everywhere  risen,  by  virtue  of  early  and  thorough  training, 
general  information,  and  ready  resource,  to  the  mastership 
of  all  enterprises,  all  sciences,  all  arts.  He  never  remains 
on  the  lowest  plane  of  labor ;  for  he  always  finds  enough  who 
are  condemned  to  it  by  ignorance  and  that  want  of  self- 
respect  and  social  confidence  which  results  from  ignorance. 
He  becomes  "  boss,"  overseer,  master,  employer,  contractor, 
projector,  from  the  force  of  that  character  which  was  im- 


CHAP.  IX.]  ECONOMY   OF  PUBLIC   EDUCATION.  443 

pressed  by  early  education,  and  those  accomplishments 
which  it  bestows  ;  nor  only  this.  Although  we  may  remem- 
ber that  for  the  greatest  inventions  we  are  indebted  to  inborn 
genius  or  fortunate  accident,  we  cannot  but  admit  that  ge- 
nius is  more  likely  to  be  born  in  men  of  such  a  stock,  and 
that  accidents  are  more  likely  to  be  fortunate  under  this 
mental  training  and  industrial  activity ;  and  accordingly  we 
find,  that  beneficent  discoveries,  whether  in  comprehensive 
laws  or  little  useful  "  knacks-,"  have  repaid  a  million-fold  all 
that  education  ever  cost  Scotland  or  New  England,  let  alone 
morality,  honors  in  scholarship,  happy  homes,  and  civil 
peace.  In  plain  speech  and  literal  truth,  no  miner,  who  at 
the  first  blow  broke  into  one  of  nature's  sub-treasuries  and 
found  gold  rolling  out  upon  his  feet,  ever  by  miracle  of 
fortune  hit  upon  a  richer  reward  than  every  people  may 
secure,  beyond  the  slightest  peradventure,  by  the  public, 
thorough  education  of  its  labor. 

It  is  not  alone  demanded  in  the  interest  of  a  greater 
production,  but  also  to  secure  a  more  just  and  uniform  dis- 
tribution of  wealth.  The  more  highly  educated,  industrially, 
the  workman  is,  the  firmer  and  apter  resistance  will  he 
offer  to  the  aggressions  of  capital  or  competing  labor ;  the 
higher  will  become  his  necessary  wages,  the  more  reasonable 
his  remuneration.  It  is  the  poor  man's  share  of  wealth 
which,  after  all  (while  we  respect  the  rights  of  capital 
for  its  own  sake  no  more  than  for  the  welfare  of  labor), 
is  the  object  of  humane  science  and  legislation.  To  rob 
the  rich,  or  to  make  them  objects  of  invidious  enactments,  is 
not  to  help  the  poor ;  it  is  only  to  make  their  misery  com- 
plete and  hopeless  :  but,  while  wealth  is  sacred  and  luxury 
is  unrebuked,  to  elevate  and  strengthen  the  humbler  classes 
by  all  moral  and  educational  influences,  —  this  is  to  bring 
comfort  and  leisure  to  every  cottage,  frugality  and  temper- 
ance to  every  home,  to  attain  the  perfection  of  the  industrial 
state,  almost  to  realize  the  dreams  of  Locke  and  Sidney. 


444  CONSUMPTION.  [book  v. 


CHAPTER  X. 

IV.     REPRODUCTIVE   CONSUMPTION  —  ITS   CHARACTER   AND 
ORIGIN. 

Reproductive  consumption  is  the  use  of  wealth  as  capital. 
Only  a  portion  of  the  wealth  of  the  world  is  applied  to  the 
office  of  creating  new  wealth.  That  portion  is  called  "  capi- 
tal :  "  that  application  is  reproductive  consumption. 

It  has  been  shown  that  mankind  are  continually  wearing 
out  their  wealth ;  indeed,  that  it  wears  out  by  natural 
causes,  independently  of  use  ;  and  that  therefore,  if  men 
would  not  become  destitute,  they  must  make  constant,  un- 
ceasing efforts  after  fresh  production. 

But  it  is  a  principle  of  our  nature  to  do  what  we  have  to 
do  with  as  little  labor  as  possible ;  that  is,  with  as  much 
help  as  possible.  Now,  it  is  found  true,  that,  by  employing 
present  wealth,  production  is  easier  and  larger,  even  after 
the  amount  so  used  has  been  replaced.  For  this  reason, 
men  take  freely  of  what  they  have,  and  destroy  it  to-day 
that  they  may  get  a  greater  good  to-morrow.  This  is  the 
only  reason  why  capital  is  used.  The  first  capital  was 
created  without  capital.  Why  should  not  all  succeeding 
creations  be  brought  about  likewise  ?  Because  it  is  found 
to  save  human  labor  and  multiply  human  enjoyments  to 
devote  the  present  to  the  future. 

But  this  application  of  capital  presupposes  the  constancy 
of  nature.  Men  would  not  put  grain  into  the  ground  unless 
they  had  the  assurance  of  a  return.  Every  act  of  this  kind 
requires  faith, — is  an  act  of  faith. 

But  even  yet  we  have  not  secured  reproductive  consump- 
tion. Every  article  of  value,  either  in  itself,  or  in  that  it 
will  exchange  for  other  things,  is  fitted  to  gratify  some 
craving  of  the  human  appetites,  tastes,  or  passions ;  and,  if 


CHAP.  X.]  REPRODUCTIVE   CONSUMPTION.  445 

nothing  withstands  these,  they  will  certainly  prevail.  Here 
is  an  object  of  value.  A  positive  force  operates  on  the  pos- 
sessor to  consume  it  at  once ;  and  he  will  do  so  as  surely  as 
a  hungry  lion  will  tear  his  prey,  unless  something  more  than 
brutal  instinct  of  immediate  self-gratification  is  found  in  the 
man.  What  is  that  which  can  stand  up  against  the  craving 
of  immediate  wants,  and  keep  them  away  from  wealth,  that 
it  may  be  devoted  to  other  uses  ?  It  is  not  necessarily  a 
high  moral  quality.  It  may  be  purely  selfish.  It  may  look 
on  to  the  gratification  of  personal  desires  only.  It  may 
entertain  no  benevolent  designs,  nor  be  capable  of  any  sacri- 
fice for  others.  All  its  denial  may  be  in  its  own  interest. 
Yet  we  say  that  it  is  wise  and  brave  and  commendable.  It 
is  the  principle  of  frugality.  Only  as  this  is  found  can  the 
reproduction  of  wealth  be  secured.  Here,  then,  we  have 
the  conditions  complete.     The  process  is  as  follows :  — 

1st,  The  certainty  that  present  wealth  will  fail  in  time. 

2d,  The  willingness  to  anticipate  such  destitution  by 
labor. 

3d,  The  fact  that  capital  can  greatly  assist  labor  in  this 
matter. 

4th,  Such  a  constancy  in  nature  as  secures  the  return  of 
capital. 

5th,  Such  a  capacity  of  self-denial  as  will  resist  the 
impulse  of  immediate  gratification,  and  devote  wealth  to 
reproduction. 

But  we  find  we  have  omitted  one  condition.  Here  is 
wealth.  If  nothing  intervenes,  it  will  certainly  be  devoted 
to  luxurious  consumption,  because  the  desires  of-  man  in 
that  direction  are  a  positive  and  constantly  operating  force. 
Frugality  comes  in  with  wise  forecast  and  strong  restraint, 
and  wrests  a  share  from  the  grasp  of  the  appetites.  Seem- 
ingly all  that  is  necessary  has  been  attained.  But  it  is  yet 
to  be  decided  whether  this  share  shall  go  into  the  province  of 
mistaken,  or  into'that  of  reproductive  consumption.  There 
is  a  very  considerable  chance  yet  before  it.     We  have  not. 


44G  CONSUMPTION.  [book  v. 

however,  regarded  this  as  of  great  practical  importance, 
inasmuch  as  it  is  generally  admitted  that  the  intelligence  of 
mankind  is,  on  the  whole,  sufficient  to  direct  its  own  indus- 
try ;  and  that  this  intelligence  resides  not  in  the  major  will 
of  the  mass,  but  in  each  individual,  or  voluntary  association. 
It  has  often  been  proposed  to  take  wealth  away  from  luxu- 
rious consumption,  by  force  of  law,  for  the  good  of  the 
whole  ;  but  legislators  and  philosophers  have  usually  agreed 
to  leave  it  to  the  intelligence  and  self-interests  of  capitalists 
and  laborers  how  the  wealth  so  saved  from  luxury  shall  be 
applied.  To  be  sure,  we  have  found  in  certain  specific 
matters,  and  under  the  confusion  of  political  forms,  that 
laws  have  been  enacted  to  instruct  industry  as  to  its  own 
wants  and  behoofs  ;  but  such  can  never  be  reasonably  de- 
fended on  general  grounds,  and  have  to  hide  themselves 
under  pleas  of  state  policy,  or  find  "  protection"  under  the 
oanners  of  party.  It  will  not  be  necessary  to  discuss,  as  a 
principle,  the  superiority  of  government  over  individual  and 
associated  intelligence  and  interest  in  the  direction  of  labor. 

We  have  now  shown  how  it  is  that  wealth  becomes  capi- 
tal ;  for  what  reasons  and  by  what  forces  it  is  taken  out  of 
the  province  of  enjoyment  or  of  waste,  and  devoted  to  the 
office  of  reproduction. 

I.  What  amount  of  reproductive  consumption  is  neces- 
sary ? 

What  should  be  the  proportion  of  capital  to  the  entire 
mass  of  wealth,  to  secure  the  industrial  well-being  of  any 
people  ?  This  question  will  be  best  answered  by  an  exami- 
nation of  the  several  offices  which  capital  is  to  perform. 

1st,  Capital  must  support  labor. 

To  all  industry  there  is  an  entrance  fee.  Not  only  must 
the  child  be  supported  through  years  of  helplessness  until  he 
becomes  an  able-bodied  laborer ;  but  even  then  every  day's 
work  requires  a  previous  supply  of  food,  clothing,  and  shel- 
ter. These  form,  at  the  least,  no  inconsiderable  share  of 
capital,  though  varying  greatly  with  climates  and  habits. 


CHAP.  X.]      REPRODUCTIVE  CONSUMPTION.  447 

A  country  which  turns  its  crops  three  or  four  times  a  year 
will  not  need  so  large  a  stock  of  provisions  for  the  mainte- 
nance of  its  labor  as  one  that  has  a  short  season,  and  is  locked 
up  in  frost  and  ice  the  rest  of  the  time.  The  same  diversity 
exists  in  respect  to  shelter  and  clothing.  All  degrees  of  dif- 
ference will  be  found  among  the  countries  of  the  world. 

Here,  then,  is  the  first  duty  of  capital.  It  must  support 
labor.  Out  of  its  products  enough  must  be  regularly  laid 
by  to  subsist  the  laborers  and  those  dependent  on  them  till 
the  next  yield.  The  necessity  is  so  plain  and  absolute  as  to 
be  generally  recognized.  Few,  indeed,  are  the  peoples  or 
persons  who  have  not  forethought  enough  to  prepare  for 
their  bodily  maintenance  from  year  to  year  ;  while,  yet,  there 
are  found  individuals  in  every  community,  and  even  large 
communities  are  found  in  the  world,  which  make  so  scanty 
provision,  that,  at  the  least  accident  or  delay  of  the  coming 
crop,  they  are  caught  hi  great  physical  distress,  and  are  often 
"educed  to  suffering  and  beggary.  What  a  light  Alkman 
throws  on  early  economy  when  he  calls  spring  "  the  season 
of  short  fare  "  ! 

2d,  Capital  must  provide  for  the  increase  of  population. 
This  is  not  because  capital  wants  population  to  increase, 
but  because  population  decides  so.  It  is  elsewhere  shown 
what  causes  operate  in  limitation.  But,  so  far  as  this  in- 
crease takes  place,  capital  evidently  must  furnish  support 
either  in  pauperism  or  in  labor.  It  is  needless  to  say  that 
the  latter  is  the  cheapest  and  best,  under  any  condition,  for 
capital.  And  this  may  be  continued  until  the  limits  of  cap- 
ital are  filled.  If  subsistence  can  be  had,  propagation  will 
naturally  go  forward.  This,  of  course,  increasing  the  indus- 
trial power,  tends,  in  a  healthy  state,  to  augment  capital ; 
and  so,  by  mutual  interaction,  an  advancing  condition  of 
society  is  secured.  It  is  only  by  false  and  vicious  laws  that 
misery  and  crime  are  multiplied  in  this  way,  rather  than 
power  and  happiness. 

3d,  Capital  must  supply  its  own  waste. 


448  CONSUMPTION.  [book  v. 

Nothing  else  will.  Labor  only  wears  out  capital.  What- 
ever is  wanted  to  renew  and  keep  up  the  present  stock  of 
machinery  and  material,  must  be  got  out  of  wealth. 

4th,  Capital  must  keep  up  with  economic  improvements. 
Individuals  and  communities  are  affected  in  this  respect  just 
as  they  are  by  the  introduction  of  new  implements  of  war. 
All  were  on  a  level  before ;  but,  if  new  and  deadlier  arts  are 
introduced  into  one,  all  others  are  at  once  forced  to  adopt 
them,  or  be  at  a  disadvantage.  So  while  a  people  might  be 
getting  along  very  well,  and  feel  no  need  of  any  discovery 
to  shorten  or  supplement  its  labor,  yet,  if  such  a  discovery  is 
made,  it  must  use  it,  or  be  thrown  out  in  the  competitions 
of  commerce.  The  operations  of  this  cause  may  sometimes 
soon  reduce  the  amount  of  capital  required  for  a  specific 
purpose  ;  but,  generally,  its  effect  is,  while  multiplying  pro- 
digiously the  results  of  labor,  to  increase  the  actual  amount 
of  tools  and  materials  which  labor  employs.  Irrespective  of 
this,  a  great  deal  is  also  wasted  by  falling  out  of  fashion  and 
use,  in  the  change  of  business,  or  of  location. 

5th,  Capital  must  support  government. 

This  is  not  the  place  to  show  the  economical  merits  of 
government,  or  to  dwell  on  its  necessity.  It  does  and  will 
exist,  and  capital  will  be  charged  with  its  maintenance.  At 
the  last  resort,  and  after  all  the  complaints  capital  may 
make  of  the  burden,  it  would  never  consent  to  be  deprived 
of  the  protection  of  the  public  force.  Capital  can  only  live 
under  law,  and  for  law  it  must  pay,  —  no  matter  what  the 
price. 

II.  What  amount  of  reproductive  consumption  is  desira- 
ble? 

We  have  been  able  to  develop  with  precision  those  abso- 
lute necessities  which  take  wealth  off  to  capital.  Wealth 
must  support  population,  provide  for  its  increase,  furnish 
labor  with  tools  and  material,  and  meet  the  demands  of 
government.  In  this  it  has  no  liberty.  It  must  do  so,  or 
cease  to  be.     But  when  these  first  gross  demands  have  been 


CHAP.  X.]  REPRODUCTIVE   CONSUMPTION.  449 

met,  shall  wealth  go  further  in  the  direction  of  reproduc- 
tion. Shall  the  energies  of  the  people  still  be  bent  on 
acquisition  ?  shall  greater  wealth  be  set  always  in  front,  as 
the  goal  of  universal  effort  ?  Shall  the  products  of  the  past 
be  scrupulously  employed  as  the  seed  of  still  more  abound- 
ing harvests  ?  or  shall  the  energies  relax,  when  nature  is 
satisfied  in  her  simplest  wants  ?  Shall  leisure  or  culture 
or  pleasure  now  become  the  objects  of  life  ?  Shall  the 
fruit  of  to-day  be  enjoyed  in  itself,  and  the  passing  hour  be 
spent  in  its  own  duties  and  amusements  ? 

It  cannot  be  denied  that  these  are  vital  questions,  and 
that  as  they  are  answered  will  the  economical  character  of 
each  people  be  taken  on.  But  we  here  enter  rather  the  field 
of  the  statesman,  the  moralist,  and  the  philosopher,  than  of 
the  economist.  The  science  of  wealth,  of  course,  cannot 
reasonably  object  to  the  pursuit  and  acquisition  of  wealth 
in  any  degree ;  yet  it  may  also  recognize  that,  as  man  has 
other  than  economical  relations,  so  he  may  have  other  obli- 
ligations,  and  may  rightfully  yield  to  them.  These,  while 
it  does  not  discuss,  it  respects.  It  is  for  the  philosopher, 
the  moralist,  the  statesman,  to  decide,  if  they  can,  how  far 
the  public  or  individual  welfare,  looking  at  all  interests  and 
duties,  will  be  subserved  by  the  increasing  production  of 
wealth,  by  heaping  store  on  store,  gathered  from  the  bounty 
of  nature  ;  by  pushing  up  the  fabric  of  industry  to  its  might- 
iest proportions ;  or,  on  the  other  hand,  by  resting  satisfied 
with  a  moderate  and  primitive  competence,  and  working  for 
quite  other  objects  than  wealth. 

So  that  we  have  no  great  occasion  here  to  discuss  these 
questions,  while  yet  two  or  three  observations  may  set  them 
in  their  proper  relation  to  our  science. 

(1)  In  a  normal  and  healthful  condition  of  society,  there 
will  be  as  little  reason  to  ask  such  questions,  for  practical 
purposes,  as  to  inquire  how  much  centrifugal  or  centripetal 
force  the  universe  needs.  All  that  is  determined  in  the  con- 
stitution of  things.     The  desire  to  gain  and  the  desire  to 

29 


450  CONSUMPTION.  [book  V. 

spend  are  both  manifestly  in  the  original  appointment  of 
our  minds  ;  constant,  abiding  forces  ;  and  no  more  benefit 
can  be  derived  from  destroying  or  weakening  either,  than 
from  loosening  or  tightening  the  bands  of  the  universe.  It 
is  just  right  as  it  is.  The  two  forces,  by  their  antagonism, 
bring  out  the  best  order. 

But  human  institutions  and  human  actions  can  affect 
these  forces  in  wealth.  The  course  of  things  may  be  such 
that  the  possession  of  property  shall  be  made  undesirable  by 
violence  ;  or  the  springs  of  industry  fail,  in  the  loss  of  am- 
bition and  hope ;  or  bodily  and  mental  vigor  be  sapped  by 
vice  or  self-indulgence.  On  the  other  hand,  the  tendencies 
of  personal  character  and  social  condition  may  bring  out 
the  desires  of  gain  in  such  a  degree  as  no  moralist,  no  lover 
of  his  kind,  can  approve ;  all  arts,  all  interests,  all  duties, 
may  be  forgotten  in  the  universal  haste  to  be  rich ;  avarice 
may  grow  into  a  passion,  may  spring  into  crimes ;  all  that 
is  good  or  holy,  all  benevolent  ministries,  all  noble  aspira- 
tions, may  be  drowned  in  the  fast-rising  waters  of  greed. 

These  are  the  limits,  on  the  one  hand  and  the  other,  of 
our  economical  condition.  It  will  not  be  denied  that  the 
subject  has  all  the  interest  that  belongs  to  human  welfare. 
But,  we  repeat,  this  is  the  province  of  other  sciences  than 
that  of  wealth.  Let  the  statesman,  the  moralist,  the  reli- 
gious teacher,  instruct  and  persuade  men  to  the  true  wis- 
dom of  life.  Political  economy  can  only  regard  them  as  the 
producers  of  wealth. 

(2)  We  may  be  permitted  to  remark,  however,  that  the 
degree  of  reproductive  consumption  which  is  desirable  will 
be  determined  somewhat  by  the  geographical  position  and 
political  relations  of  a  people.  A  nation  that  has,  or  aspires 
to  have,  international  power  and  influence,  has  need  of 
greater  resources  than  one  which  is  content  with  the  simple 
pursuits  of  internal  comfort  and  tranquillity.  There  is  a 
marked  difference  in  the  degrees  of  wealth  necessary,  as  a 
people  thrusts  itself  into  the  arena  where  commercial  advan- 


CHAP.  X.]  REPRODUCTIVE   CONSUMPTION.  451 

tages,  colonial  acquisition,  territorial  conquests,  military 
glory,  and  continental  supremacy,  are  contended  for ;  or  re- 
tires to  the  development  of  its  own  soil,  and  the  care  of  its 
domestic  happiness. 

But,  still  further,  we  find  that  one  controlling  reason  for 
production,  even  in  the  least  ambitious  nations,  has  been  the 
general  and  distant  apprehension  that  it  may  at  some  time 
be  called  on  to  defend  itself.  The  world  over,  statesmen,  in 
all  ages,  have  felt  the  necessity  of  securing  economical  power 
as  the  means  of  national  security.  Here,  again,  we  see 
that  as  a  country  is  isolated  or  open  to  attack,  is  naturally 
fortified  or  easy  to  be  overrun,  so  the  reasons  for  obtaining 
a  large  production  will  be  less  or  more  urgent.  Many  such 
considerations  will  influence  the  founder  or  governor  of  a 
state,  in  determining  whether  the  reproductive  agencies 
shall  be  pressed  to  their  extreme,  and  the  influence  of  law 
be  thrown  on  the  side  of  acquisition  and  accumulation,  or 
all  shall  be  left  to  individual  taste  or  caprice. 

(3)  It  is  unquestionably  true,  that,  all  other  tilings  equal, 
the  desires  to  spend  or  to  gain  will  be  differently  developed  in 
different  people,  according  to  the  individual  genius.  Peace 
and  liberty  will  not  inspire  some  races  with  a  high  economical 
ambition ;  nor  can  the  utmost  violence  of  persecution,  dis- 
order, and  corruption  wholly  suppress  the  mighty  instincts 
of  acquisition  in  others.  And  between  these  extremes  every 
degree  will  be  met.  Just  as  some  plants  are  born  for  beauty, 
grace,  and  fragrance ;  others  with  homely  virtues  and  for  un- 
romantic  uses,  —  so  men  bring  with  them  impulses,  ideal  or 
practical,  that  determine  them  to  their  several  courses,  all 
the  way  from  the  serenest  speculations  in  ontology  to  the 
maddest  speculations  in  oil. 


452  CONSUMPTION.  [book  v. 


CHAPTER  XI. 

POPULATION. 

The  question  of  population  has  been  invested,  by  the  treat- 
ment of  British  writers,  with  a  great  mystery  and  terror. 
The  glut,  famine,  and  death  theories  of  Malthus  have  done 
much  to  impress  upon  political  economy  the  shape  it  has  to- 
day in  the  world's  estimation.  Rightly  enough,  if  they  are 
correct,  is  it  called  a  dismal  science.  Malthus  exhausted  the 
direct  horrors  of  the  subject ;  but  the  effect  was  greatly 
heightened  by  the  benevolent  efforts  of  many  subsequent 
writers  to  provide  some  way  of  escape  from  this  fatal  conclu- 
sion,—  efforts  which,  as  they  resulted  in  palpable  failure,  only 
made  the  outlook  of  humanity  more  dreary  and  hopeless. 

The  fact  is,  all  this  British  philosophy  of  population  is 
perverted  and  diseased  from  its  root.  It  comes  out  of  social 
wrongs  and  false  political  institutions.  It  strives  to  apply, 
as  a  universal  condition  of  human  being,  the  miserable  re- 
sults of  local  misrule.  Prior  to  all  consideration  of  such 
arguments,  there  is  reason  to  suspect  theories  of  subsistence 
and  population  that  come  from  an  island  where  holdings  of 
land  are  only  as  one  to  six  hundred  or  seven  hundred  inhab- 
itants. 

These  principles  are  intended  to  apply  to  the  entire  sur- 
face of  the  earth,  and  have  no  merit  unless  capable  of  such 
extension ;  but,  to  give  them  their  most  favorable  conditions, 
we  will  first  consider  a  single  district  of  limited  area,  —  say, 
England  itself. 

Two  postulates  are  often  assumed, — 1st,  That  subsistence 
is  stationary  or  retrogressive;  2d,  That  propagation  is  a 
constantly  operating  force,  enlarging  population  in  some 
assignable  ratio.  The  inference  is,  that  the  relation  of  these 
two  must  bring  out  destitution  and  famine. 


CHAP.  XI.]  POPULATION.  453 

There  are  here  three  fallacies :  1st,  That  subsistence  is 
not  progressive ;  2d,  That  population  necessarily  increases  ; 
3d,  That,  even  if  these  were  granted,  there  would  exist  be- 
tween them  any  such  melancholy  relation  as  is  assumed. 

1st,  Subsistence.  —  The  fertility  of  the  earth,  instead  of 
diminishing,  is,  under  intelligent  culture  and  with  the  aids 
of  science  and  machinery,  constantly  increasing.  The  ad- 
vance of  industrial  power,  in  commerce  and  manufactures, 
not  only  furnishes  direct  assistance  in  agriculture,  but  re- 
leases, if  required,  a  great  amount  of  labor  for  the  latter 
pursuit.  As  is  the  amount  of  labor  applied  to  land,  so  is 
the  yield,  the  world  over.  The  England  of  to-day  is  vastly 
more  fertile  than  that  of  the  Heptarchy,  the  Norman  con- 
quests, or  the  civil  wars.  Nor  are  all  its  capacities  of  pro- 
duction exhausted.  It  has  now  millions  of  acres  unre- 
claimed, which  are  susceptible  of  cultivation.  It  is  no  an- 
swer to  this  to  say  that  they  will  not  pay  for  reclaiming. 
That  merely  shows  that  English  labor  has  now  a  more  prof- 
itable employment.  We  are  discussing  only  the  absolute 
capabilities  of  the  soil.  With  the  known  laws  of  agricul- 
ture, prudently  followed,  the  produce  of  any  country  should 
advance  in  a  certain  and  considerable  ratio.  Besides,  we 
know  not  what  new  agents  of  fertilization  may  be  discov- 
ered, or  what  shorter  methods  may  be  devised  for  applying 
power.  Certainly,  the  mechanical  and  chemical  discoveries 
of  the  last  fifty  years  justify  almost  any  degree  of  expecta- 
tion. 

2d,  Propagation.  —  The  rule  of  geometric  increase  is  a 
favorite  weapon  in  the  defence  of  certain  theories ;  but  it  is 
wonderfully  far  from  the  truth  of  nature.  Boys  have  fre- 
quently exhibited,  on  the  blackboard,  the  immense  wealth 
they  could  acquire  if  they  should  lay  by  a  penny  a  day,  at 
interest,  for  so  many  years ;  and  the  result  seems  very 
alarming,  as  if  that  particular  school  would  eventually  be- 
come the  owners  of  by  far  the  greater  part  of  the  earth's 
surface.     So  much  for  mathematics.     But,  in  fact,  some 


454  CONSUMPTION.  [book  v. 

days  the  boys  don't  earn  their  pennies,  and  some  days  they 
don't  lay  them  by,  and  some  of  the  boys  die ;  and  perhaps 
the  bank  unfortunately  breaks,  or,  after  a  few  months  of 
continence,  a  juvenile  rush  is  made  upon  it,  and  all  hopes 
of  fortune  disappear  in  a  saturnalia  of  candy  and  ginger- 
pop.  The  illustration  is  plain  and  humble;  but  it  involves 
all  the  elements  that  limit  the  theoretic  advance  of  wealth 
or  population. 

To  argue  from  abstract  and  individual  possibilities  of 
propagation  to  the  future  actual  increase  of  the  race,  would 
be  like  a  philosopher's  predicting  an  infinite  flight  for  his 
arrow,  because  of  his  ascertained  law  of  impulse  and  con- 
tinued motion,  disregarding  the  opposition  of  the  atmos- 
phere and  the  constant  subtraction  of  gravitation. 

Indeed,  contemplating  certain  positive  unquestionable 
facts  in  history,  great  instances  of  depopulation,  ages  of 
decline,  the  slow  advances  of  reviving  production,  we  may 
fairly  begin  to  doubt  whether  propagation  is  a  permanent 
force  irrespective  of  conditions.  We  may  not  unreasonably 
inquire  whether  it  ever  appears  without  a  special  reason  in 
the  case;  whether  the  rule  is  not  the  other  way;  viz.,  not 
that  population  does  not  proceed  in  spite  of  adverse  influ- 
ences, but  that  it  is  never  called  out  except  by  physical 
circumstances,  which,  in  all  their  contradiction  and  bewil- 
derment to  us,  really  form  the  condition  precedent  of  human 
reproduction.  Why  not  ?  We  do  not  say,  that  individual 
growth,  either  vegetable  or  animal,  is  a  constantly  operating 
force,  irrespective  of  circumstances.  We  recognize  the  ne- 
cessity of  heat,  moisture,  and  special  properties  of  soil  to 
educe  the  latent  powers  of  expansion.  Similar,  though 
more  remote  and  perplexed,  are  the  influences  which  bring 
out  reproduction  in  the  animal  or  vegetable.  It  is  there- 
fore more  correct  to  say,  that  population,  instead  of  being 
limited  by  adverse,  is  only  developed  by  favorable,  condi- 
tions. We  are  deceived  in  this  matter,  because  propagation 
acts  almost  universally.  That  happens  simply  because  the 
favorable  conditions  are  almost  universal. 


CHAP.  XI.]  POPULATION.  455 

This  argument  is  not  affected  by  exhibiting  a  great  deal 
of  misery,  the  result  of  want.  The  laws  of  reproduction 
are  not  responsible  for  subsequent  mismanagement  and 
abuse.  Nor  does  this  obstruction  to  propagation,  coming 
out  of  circumstances,  operate  to  the  degree  of  preventing 
deformity  or  suffering.  But  it  does  apply  its  check  before 
the  limits  of  destruction  are  reached.  Speaking  generally, 
nothing  is  born  where  it  cannot  live. 

In  reference  to  general  use,  however,  we  shall  speak  of 
adverse  circumstances  limiting  population. 

This  whole  matter  may  be  perfectly  exhibited  by  an  illus- 
tration from  vegetable  life.  The  forests  have  a  constant 
tendency  to  enlarge  their  bounds,  and  thicken  their  growth. 
The  rate  of  individual  increase  is  prodigious  in  the  family 
of  trees.  And  so  forests  may,  when  there  is  no  opposing 
force,  spread  over  all  adjacent  country,  and  may  grow  closer 
and  closer  till  the  perfectness  and  beauty  of  the  solitary  oak 
are  lost  in  the  maze  of  interlacing  boughs.  But  just  as  it 
would  be  absurd  to  suppose  that  the  trees  would  ever  grow 
so  thickly  as  to  require  the  woodman's  axe  or  a  vegetable 
pestilence,  so  it  is  unphilosophical  to  anticipate  an  increase 
of  population  which  will  require  war  or  plague  to  reduce  it 
to  the  limits  of  food.  The  shoots  of  human  life  will  no 
more  crowd  their  soil  than  will  the  children  of  the  forest. 
As  well  might  a  benevolent  botanist,  lamenting  the  natural 
logical  increase  of  the  trees,  predict  internecine  arborial 
war  or  sylvan  infanticide,  as  Malthus,  from  abstract  princi- 
ples of  human  increase,  possible  in  individual  cases,  forecast 
his  dreadful  tables  of  starvation  and  crime.  The  spread  of 
the  human  race,  as  of  the  sylvan,  limits  itself  by  the  chemi- 
cal resources  of  the  soil,  the  fostering  influences  of  the  air, 
the  superficial  capacities  of  the  ground.  The  agencies  of 
animal  as  of  floral  propagation  are  possessed  of  a  delicate 
discrimination,  a  prudent  forecast,  and  a  virtuous  conti- 
nence, which  shame  the  most  cautious  calculations  of  the 
reason.     They  may  err  somewhat,  and  that,  too,  within  lim- 


456  CONSUMPTION.  [book  v. 

its  which  allow  much  deterioration  of  the  species,  and  much 
local  misery ;  but  their  conditions  restrict  fchem  within  the 
bounds  of  life. 

What  these  circumstances  are  which  control  the  increase 
of  population,  we  shall  not  discuss  at  this  point. 

3d,  The  third  fallacy  we  detect  is,  that,  granted  the  two 
postulates  of  stationary  subsistence  and  advancing-  popula- 
tion in  any  country,  there  is  any  necessary  relation  of  dis- 
tress and  deterioration  between  them.  Such  a  view  puts 
commerce  out  of  the  question.  In  the  present  state  of  the 
world,  the  only  matter  of  interest  to  determine  in  regard 
to  the  supply  of  any  people  is,  whether  they  are  able  to 
produce  values  sufficient  to  command  in  exchange  the  com- 
modities they  must  consume.  It  is  of  no  consequence 
whether  Manchester  or  Birmingham  can  raise  their  own 
breadstuffs  within  their  corporate  limits,  if  they  can  create 
values  which  will  lay  all  the  markets  of  the  world  under 
contribution.  Labor,  if  law  does  not  hinder,  is  self-sup- 
porting. The  powers  of  industry  are  commensurate  with 
their  wants.  But,  if  legal  and  social  institutions  interrupt 
or  burden  exchanges,  in  one  way  or  another,  distress  will 
result.  There  is  no  fault  in  human  propagation,  but  in 
what  is  subsequent.  To  illustrate :  thirty  years  ago,  there 
was  great  suffering  among  the  poor  of  England.  This  gave 
rise  to  the  very  theory  of  population  we  are  considering. 
It  became  a  matter  of  common  belief,  that  starvation  was 
inevitable  in  human  society. 

Now  it  used  to  be  a  generally  accepted  principle  of  phys- 
ics, that  "  nature  abhors  a  vacuum ; "  and  much  machinery 
was  constructed  on  that  principle.  On  one  occasion,  an 
experimenter  happened  to  apply  it  to  a  tube  longer  than 
usual,  when  it  failed  to  work.  Rushing  in  great  excitement 
to  the  office  of  a  distinguished  philosopher,  he  announced 
the  catastrophe.  "  Perhaps,"  was  the  quiet  response, — "  per- 
haps nature  does  not  abhor  a  vacuum  higher  than  thirty-four 
feet." 


CHAP.  XI.]  POPULATION.  457 

Just  such  a  discovery  was  made  at  this  time  in  England. 
The  corn-laws  were  repealed,  and  half  the  misery  of  the 
laboring  class  sank  out  of  sight  for  ever.  This  it  was 
which  first  led  men  to  suspect  that  "  nature  did  not  abhor 
a  vacuum  higher  than  thirty-four  feet; "  that  is,  to  drop  the 
anecdote,  that  nature  creates  no  human  labor  to  be  starved 
out  of  existence,  but  that  whatever  misery  and  suffering 
there  is,  comes  of  man's  folly  and  sin. 

In  England,  bad  laws,  passed  by  class  legislation ;  oppres- 
sive institutions,  the  relics  of  feudalism ;  onerous  taxation, 
incurred  by  the  senseless  war  system  ;  and  unjust  monopo- 
lies, created  for  selfish  purposes,  —  have  combined  to  cause 
the  ignorance,  poverty,  and  degradation  of  the  people,  and 
to  make  the  beneficent  agencies  of  reproduction  a  partial 
curse.  The  laborers  of  England  suffer  for  the  commonest 
necessaries  of  life,  while  England  is  the  richest  nation  on 
the  face  of  the  globe.  Unquestionably,  the  value  of  the 
total  production  of  English  industry  amounts  to  five  times 
the  value  of  the  simple  necessaries  of  life  for  her  whole 
population.  Now,  if  labor  starves,  is  it  the  fault  of  nature  ? 
The  density  of  population  has  nothing  to  do  with  it.  It  is 
because  the  common  people  have  so  little  influence  on  the 
government ;  because  the  land  is  held  for  the  pleasures  and 
dignity  of  the  lordly  few  ;  and  because  the  national  majority 
is  borne  down  by  a  powerful,  selfish,  and  grasping  aristoc- 
racy. Though  the  people  suffer,  it  is  because  of  nothing  in 
the  extent  or  fertility  of  their  soil.  But  for  a  complicated, 
legalized  system  of  robbery  and  wrong,  every  man,  woman, 
and  child  in  the  United  Kingdom  might  be  as  well  fed, 
clothed,  and  educated,  as  are  the  inhabitants  of  the  United 
States,  and  as  much  more  so  as  England  is  to-day  richer. 
Any  man  and  any  people  that  can  create  value  can  com- 
mand subsistence  in  God's  way. 

If  now  we  extend  our  inquiry  from  England  to  the  whole 
industrial  world,  we  shall  bring  another  element  into  the 
calculation,  not  to  increase  the  chances  of  distress  by  over- 


458  CONSUMPTION.  [book  v. 

j  io)  uilation,  but  to  diminish  them.  Whatever  maybe  true 
of  individual  peoples  at  any  particular  time,  the  general 
advance  of  population  all  over  the  earth  lias  not  been  very 
clearly  proved.  But,  whether  it  has  taken  place  from  cen- 
tury to  century  or  not,  it  certainly  has  not  progressed  in 
the  last  five  centuries  at  so  rapid  a  rate  as  tbe  means  of 
subsistence ;  nor  is  there  any  ground  for  believing,  that 
the  present  advance  will,  the  world  over,  continue  when  the 
means  of  subsistence  shall  become  stationary.  There  never 
has  occurred  a  case  of  starvation  in  the  history  of  the  world 
which  resulted  solely  from  a  deficiency  in  the  natural  means 
of  procuring  food  ;  and  there  is  no  reason  to  believe  that 
there  ever  will  be  one.  There  have  been  countless  millions 
of  deaths  from  hunger  occasioned  by  the  destructiveness, 
envy,  or  heedlessness  of  man,  through  war,  commercial 
restrictions,  or  personal  neglect. 

We  have  spoken  of  the  forces  which  limit  population. 
We  shall  not  assume  to  express  them  all,  or  to  give  an 
exact  measurement  of  them ;  yet  we  shall  be  able  to  state 
enough  to  show  what  is  the  course  of  nature  in  this  matter. 

1st,  Subsistence.  —  We  do  not  mean  any  thing  so  common- 
place as  that  there  can  be  no  more  population  than  there  is 
subsistence  to  maintain  in  life.  That,  of  course,  could  not 
be.  But  it  might  be  avoided  in  two  ways, — by  death  operat- 
ing on  population,  or  prevention  operating  on  propagation. 
We  mean  that  the  ultimate  bounds  of  food  are  the  bounds 
also  of  reproduction.  At  the  last  resort,  and  after  its  own 
extreme  limit  has  been  reached,  subsistence  limits  growth. 
This,  however,  is  only  because  to  the  impulse  of  the  latter 
is  opposed  an  unyielding  prohibition  in  the  former  :  and 
even  this  may  only  be  effected  (so  far  as  the  operation  of 
this  principle  is  concerned),  the  springs  of  population  may 
only  finally  be  dried,  after  a  long  and  painful  process : 
after  the  comfort  and  health  of  the  laboring  classes  have 
been  greatly,  it  may  be  permanently,  reduced  by  contin- 
uous privation  and  hardship.     So  long  as  population  can, 


CHAP.  XI.]  POPULATION.  459 

so  to  speak,  induce  subsistence  to  increase,  so  long  it  may 
itself  increase  ;  and  it  is  only  when  the  latter  returns  a 
positive  refusal  that  the  former  begins  to  check  itself.  In 
the  interval  of  adapting  itself,  i.e.  before  it  can  hold  up, 
there  may  result  much  misery  and  crime.  So  long  as  the 
increase  of  capital,  i.e.  food,  clothes,  and  shelter,  for  the 
laboring  class,  is  possible,  the  natural  advance  in  the  wants 
of  the  community,  coming  out  of  growing  numbers,  will 
determine  a  still  larger  share  to  reproductive  consumption ; 
will  call  off  more  and  more  from  play  to  work.  The  causes 
that  increase  population,  all  other  things  being  propitious, 
are  positive  and  powerful,  and  will  not  yield  to  any  feeble 
or  distant  objection  from  subsistence.  So  long  as  more 
capital  can  be  taken  up,  they  will  continue  to  operate,  and 
wealth  must  conform  itself  accordingly.  But,  when  capital 
can  go  no  further,  propagation  must  stop,  or  population  will 
starve.  The  former  will  be  found  to  occur.  It  does  not 
matter  by  what  degrees  of  cold,  hunger,  feebleness,  over- 
work, this  is  effected.  Nature  secures  the  result.  We 
are  no  more  bound  to  show  how  it  is  brought  about  than 
how  it  is  that  lions  and  elephants  are  not  found  on  islands. 
Nature  has  discrimination  'and  proportion  in  her  work,  and 
it  takes  all  the  recklessness  and  folly  of  man  to  bring  about 
the  least  degree  of  distortion. 

Destitution  is,  of  course,  a  relative  term.  Perhaps,  as  a 
general  condition,  it  is  found  mainly  among  savage  tribes, 
which  subsist  on  spontaneous  productions  or  the  captures  of 
the  chase.  This  is  the  limited  state,  and  here  the  increase 
of  population  is  very  slow.  Such  has  been  the  case  with  the 
North-American  Indians,  who,  as  we  are  told  by  Dr.  Eobert- 
son  and  others,  rear  seldom  more  than  two  children  to  a 
family,  and  often  none.  We  must  not  confound  individual 
with  general  destitution.  It  is  not  claimed,  that  the  former, 
when  abruptly  occasioned,  is  sufficient  to  check  propagation. 
That  would  be  against  nature  and  reason.  Such  is  the  first 
gross  cause  which  limits  population. 


4G0  CONSUMPTION.  [book  V. 

It  only  applies  to  peoples  in  the  lowest  condition  of  life 
and  of  the  least  moral  endowment.  Upon  those  of  a  higher 
scale  of  being  other  influences  will  be  found  to  operate. 

2d,  The  second  cause  which  we  shall  cite  is  directly  the 
reverse  of  the  first.  It  is  luxury.  How  any  one  could  ever 
have  held  the  view  that  the  forces  of  propagation  are  con- 
stantly operative,  in  the  face  of  the  experience  of  the  Roman 
state,  extending  over  many  generations,  destroying  even  the 
name  of  nearly  all  its  great  families,  calling  for  the  earnest 
remonstrances  of  its  rulers,  censors  and  emperors  alike,  and 
forming  the  subject  of  repeated  legislation  both  in  premiums 
and  penalties,  we  cannot  understand. 

Luxury  commences  when  trade  and  arts  have  been  car- 
ried  to  a  considerable  degree  of  perfection.  It  is  even  a 
stronger  check  on  population  than  destitution,  though  acting 
on  a  smaller  class.  Its  artificial  habits,  its  irregular  occu- 
pations, its  indolence,  its  self-indulgence,  all  combine  to 
weaken  the  forces  of  reproduction.  Rarely  indeed  would 
patents  of  nobility  and  entailed  estates  fall  in,  if  committed 
to  the  inhabitants  of  the  cottage  rather  than  of  the  castle. 

3d,  We  have  that  class  of  influences  which  are  found  in 
vicious  habits  and  unwholesome  occupations.  The  sure 
results  of  these  are  to  check  propagation,  a  most  beneficent 
provision  of  nature.  In  a  marked  degree  is  this  true  of 
those  occupations  which,  by  heated  air,  by  poisonous  exhala 
tions,  by  cramping  postures  or  excessive  labor,  dwarf  and 
distort  the  functions  of  the  body.  The  same  causes  most 
mercifully  defeat  the  powers  of  reproduction.  It  is  well 
that  it  should  be  so ;  that,  if  these  places  must  be  filled, 
fresh  life  may  be  poured  into  them  from  the  hillsides, 
rather  than  that  the  course  of  health  and  strength  should 
be  downward  without  relief,  falling  faster  every  generation. 
For  the  effects  of  vicious  courses,  we  need  only  cite  those 
savage  nations  which,  in  every  quarter  of  the  globe,  are  dis- 
appearing so  fast,  not  more  by  the  pressure  of  civilization 
than  by  their  own  destructive  habits. 


CHAP.  XI.]  POPULATION.  461 

4th,  We  have  also  that  class  of  influences  which  come 
from  misgovernment  and  war.  These  serve  to  retard  the 
progress  of  population,  though  not  necessarily  to  throw  it 
backward.  France  under  the  old  regime,  England  through 
her  most  sanguinary  civil  conflicts,  still  held  on  their  way  in 
wealth  and  numbers ;  but  Campania  by  excessive  taxation, 
Belgium  by  religious  persecution,  Germany  in  the  Thirty 
Years'  "War,  Prussia  under  the  great  struggles  of  Frederick, 
fell  off  widely  in  both  respects.  It  really  seems  too  bad  to 
quote,  but  many  writers  have  ventured  to  suppose  that  war 
was  God's  own  method  of  restraining  population !  The 
money  spent  in  any  war  would,  ten  times  over,  support  all 
the  men  killed  in  it ;  if,  indeed,  the  destruction  of  the  able- 
bodied  could  be  supposed  to  take  any  thing  from  the  difficulty 
of  subsistence,  especially  when  their  helpless  dependants 
remain.  How  the  war-system  affects  population  may  be 
shown  in  an  instance.  Nearly  half  a  million  of  young  men 
in  France  are  required  to  serve  in  the  army  from  the  ages 
of  eighteen  to  twenty-five.  This  embraces  the  period  at 
which  the  occupations  of  life  are  usually  chosen,  marriage 
contracted,  and  domestic  habits  formed.  At  the  end  of  their 
service,  they  are  thrown  out  on  society  with  the  vices  of  the 
camp  and  the  restlessness  of  military  life,  with  no  position 
in  life  secured,  and  no  occupation  learned.  The  results  have 
been  plainly  visible  in  diminishing  from  year  to  year  the 
ratio  of  increase  in  population. 

5th,  The  fifth  cause  which  we  shall  notice  isialtogether 
different  in  its  origin  and  character.  The  others  have  all 
been  on  the  brutal  side  of  man,  operating  by  misery  and 
want.  This  works  in  alliance  with  the  nobler  part  of  his 
being,  and  is  of  a  kind  with  reason.  It  is  self-restraint. 
In  a  degree,  indeed,  a  great  part  of  the  world  exercises 
this.  The  Chinaman  will  rear  as  many  children  as  he  can 
find  vermin  for  as  food ;  but  the  Hindoo,  through  his  reli- 
gious faith,  stops  short  of  all  animal  food,  and  limits 
population  by  vegetable  subsistence.     And   so  almost  all 


462  CONSUMPTION.  [book  v. 

nations  have  a  point  of  decency  below  which  they  will  not 
go.  But  the  self-restraint  of  which  we  speak  is  of  a  higher 
kind,  and  begins  to  operate  before  the  senses  revolt  in  dis- 
gust or  pinch  in  hunger.  It  is  found  wherever  there  is 
self-respect  and  social  consideration.  Hence  the  moderate 
increase  of  many  countries  where  population  maintains  a 
just  proportion  to  the  general  wealth,  taste,  and  customs. 
As  this  is  a  subject  to  which  belongs  illustration  rather 
than  analysis,  we  give  at  length  a  remarkable  example, 
which  will  also  enable  us  to  set  in  contrast  the  operation  of 
the  other  causes.  We  take  the  State  of  Massachusetts, 
of  which,  let  it  be  observed,  only  a  very  small  class  is 
influenced  by  luxury,  and  a  smaller  class  even  affected  by 
destitution.  Vice,  war,  and  misgovernment  certainly  work 
as  little  injury  here  as  in  any  portion  of  the  world. 

The  annual  registration,  made  with  much  care,  shows  the 
following  result  in  regard  to  births  among  the  native  and 
foreign  population  in  1860  :  — 

Native  population,  whole  number  of  persons   ....  970,952 

Foreign       „               „           „              „            ....  260,114* 

Number  of  births  in  native  population 16,672 

„               „         foreign        „         16,138 

The  number  of  births  in  the  native  population,  to  be  in 
proportion  to  the  foreign,  should  have  been  60,239,  or  nearly 
four  times  the  actual  number.  The  difference  is  very  strik- 
ing and  Suggestive.  It  may  be  accounted  for  in  part  by 
the  following  considerations :  — 

(1)  A  very  considerable  share  of  the  foreign  population 
consists  of  those  under  fifty  years  of  age,  and  so  generally 
able  to  contribute  to  the  increase  of  population.  How  far 
this  fact  is  operative  may  be  seen  in  the  statement,  that,  if 
all  persons  above  fifty  were  removed  from  the  native  popula- 
tion, it  would  be  diminished  somewhat  over  one-sixth ;  that 
is,  brought  so  much  nearer  the  numbers  of  the  foreign. 
*  Of  these,  185,434  are  from  Ireland. 


CHAP.  XI.]  POPULATION.  463 

(2)  The  foreign  population  is  engaged  somewhat  less 
than  the  native  at  in-door  and  sedentary  employments,  and 
in  so  far  are  likely  to  be  more  vigorous. 

(3)  But  the  grand  cause  for  the  remarkable  difference  we 
have  observed  is  found  in  the  fact,  that  the  foreign  popula- 
tion are  far  less  influenced  by  prudential  considerations  and 
social  restraint.  They  therefore  enter  the  marriage  state 
with  less  regard  to  their  ability  to  support  a  family  respect- 
ably. Destitution,  in  the  sense  which  restricts  propagation, 
hardly  exists  among  them.  Indeed,  it  may  be  said  that  they 
are  actually  richer,  according  to  the  standard  of  living  they 
were  accustomed  to  at  home,  than  are  our  native  popula- 
tion. Consequently,  they  do  not  for  a  moment  hesitate  to 
marry  from  any  fear  of  want  or  of  losing  caste  by  poverty. 

On  the  other  hand,  the  resistance  to  marriage  from  a  more 
costly  style  of  living,  is  constantly  increasing  with  the  native 
population,  among  whom  the  standard  of  family  expendi- 
tures rises  rapidly  with  the  finer  culture,  the  more  elegant 
arts,  and  the  greater  social  vivacity  of  each  new  year.  The 
foreign  population  can  get  food,  shelter,  and  clothing  of  some 
kind.  That  is  their  idea  of  life.  Why,  then,  should  they 
not  marry,  and  rear  families  ?  To  show  how  this  cause 
operates  to  produce  marriage  among  them,  we  refer  to  the 
same  statistics :  — 

American  marriages 7,381 

Foreign            „         4,057 

One  party  foreign ,943 

Nativity  not  stated ,447 

Total 12,828* 

*  Of  deaths  in  Massachusetts    the    same   year,  we    find  that  the  whole 

number  was 23,068 

Of  which  were  American 19,404 

Foreign 3,381 

Nativity  not  stated 283 

23,068 

Here  we  see  that  the  mortality  of  the  native  population  exceeds  that  of 
the  foreign,  comparing  their  respective  numbers.     So  that,  while  we  attribu^n 


464  CONSUMPTION.  [book  v. 

According  to  population,  the  purely  American  marriages 
should  have  been  about  18,000,  or  considerably  more  than 
twice  the  actual  number.  Here  we  find  the  force  of  social 
restraint  acting  on  the  native  population. 

Such,  then,  are  the  principal  causes  which  limit  popula- 
tion. The  course  of  propagation,  as  affected  by  .subsistence 
alone,  may  be  described  as  follows :  From  a  given  point  des 
titution  will  bear  it  down  by  the  most  painful  pressure, 
involving  social  and  individual  misery  and  degradation. 
Under  a  scant  and  difficult  livelihood  it  will  bear  upward 
by  its  inherent  forces,  but  slowly  and  with  constant  opposi- 
tion. Competence  gives  it  an  assured  and  regular  course ; 
relieving  from  all  considerations  of  physical  maintenance, 
but  substituting  therefor  healthful  and  harmonious  re- 
straints, hardly  less  powerful.  Under  these  influences, 
society  gains  in  wealth,  leisure,  and  comfort,  and  is  able  to 
organize,  educate,  and  control  its  population.  Every  child 
born  into  this  condition  may  be  born  to  health  and  happi- 
ness, and  to  be  a  strength  and  ornament  to  the  state. 
Luxury  may  now  enter  as  an  element  (though  luxury,  in 
the  degree  to  affect  population,  is  not  a  necessary  concomi- 
tant of  wealth  and  culture),  and,  as  such,  will  either  reduce 
the  rate  of  increase  from  that  of  a  condition  of  competence, 
or,  by  becoming  excessive,  it  may  bring  population  down 
with  great  rapidity.  We  have,  then,  these  three  grand  condi- 
tions which  limit  the  propagation  of  the  race,  of  which  two 
can  only  operate,  by  debasing  and  perverting  the  bodily 
powers  of  man ;  the  third  adds  to  his  dignity,  secures  his 
physical  well-being,  promotes  industrial  activity,  and  estab- 
lishes the  state.  There  can  be  no  question  towards  which 
the  effort  of  the  moralist  and  teacher,  or  the  sanctions  of 
the  statesman  and  jurist,  should  be  directed. 

to  the  latter  a  greater  proportion  of  marriages  and  births,  we  find  them  falling 
off  hi  mortality.  And  what  is  true  of  Massachusetts  probably  holds  true 
throughout  the  United  States.  Of  course,  this  diminished  mortality  is  in  part 
accounted  for  by  the  fact  before  remarked  upon,  that  their  aged  and  feeble 
members  were  left  at  home  when  the  emigration  took  place. 


CHAP.  XII.]  RIGHT  CONSUMPTION.  465 

We  have  thus  far  spoken  of  the  reproductive  forces  with- 
out recognizing  the  differences  originating  in  diversities  of 
climate  and  ethnical  stock.  These  unquestionably  exist, 
and  greatly  modify  the  facts  of  propagation ;  but,  as  they  are 
local  and  peculiar,  we  shall  enter  upon  no  discussion  of 
them. 


CHAPTER  XII. 

IMPORTANCE  OF   A  RIGHT   CONSUMPTION. 

This  has  been  already  shown  by  the  light  of  our  definition 
of  consumption.  It  has  all  the  importance  which  belongs 
to  the  science  itself. 

Consumption  makes  use  of  the  wealth  which  production 
has  brought  about  with  all  the  world's  industrial  energy. 
It  determines  how  each  appreciable  atom  shall  be  applied : 
whether  to  degrade,  or  to  elevate  ;  whether,  like  fruitful 
seed,  to  re-appear  in  harvest,  or,  like  a  virulent  acid,  to 
destroy  the  very  vessel  in  which  it  is  placed ;  whether  to 
set  forth  the  humble  household  of  the  laborer,  or  to  gleam 
a  moment  in  the  halls  of  revelry ;  whether  to  feed  a  thou- 
sand workmen  on  the  temple  of  national  industry,  or  to 
melt  out  of  sight,  like  Cleopatra's  jewel,  in  wanton  luxury. 

All  the  moral  and  social  interest  that  belongs  to  wealth, 
belongs  to  its  use ;  for  as  that  is  right  or  wrong,  healthful 
or  hurtful,  so  wealth  itself  is  a  blessing  or  a  curse ;  so  sci- 
ence should  strive  after  it  with  earnest  efforts,  or  guard 
against  with  the  same  wise  precaution  and  thorough  research 
which  keep  out  the  plague. 

There  is  a  right  consumption  of  wealth  that  would  bring 
comfort,  health,  and  education  within  the  reach  of  every 
human  being  not  born  incapable  of  receiving  them  ;  that 
would  make  poverty  impossible  on  the  earth ;  that  would 

30 


466  CONSUMPTION.  [book  v. 

dispense  with  half  the  inducements  to  crime ;  that  would 
beautify  every  home,  and  lighten  every  work.  It  may  not 
be  wise  to  expect  the  quick  attainment  of  such  a  result,  or 
worth  while  to  prepare  our  robes  for  such  an  ascension  of 
humanity  ;  but  just  as  far  as  the  consumption  of  wealth  can 
be  affected  by  human  laws,  or  customs  and  agreements,  in 
so  far  may  this  end  be  approached  in  every  day  of  time.  It 
is  only  one  part  of  this  possibility  at  which  the  poet  looked, 
when  he  said  :  — 

"  Were  half  the  power  that  fills  the  world  with  terror, 
Were  half  the  wealth  bestowed  on  camps  and  courts, 
Given  to  redeem  the  human  mind  from  error, 
There  were  no  need  of  arsenals  and  forts." 

The  mind  can  hardly  lift  itself  to  see  — 

"What  might  be  done,  if  men  were  wise." 

Yet  political  economy  is  a  "  dismal  science,"  indeed,  if 
we  cannot  look  on  to  the  gradual  amelioration  of  our  human 
condition,  not  by  miracle  from  the  earth  or  the  air,  but  by 
a  wiser  use  of  wealth,  for  kind  purposes  created  and  be- 
stowed,— 

"All  slavery,  warfare,  lies  and  wrongs, 
All  vice  and  crime  might  die  together ; 

And  wine  and  corn, 

To  each  man  born, 
Be  free  as  warmth  in  summer  weather." 

Not  only  does  all  the  advantage  of  present  or  accumulated 
wealth  depend  on  the  use  made  of  it  in  consumption,  but 
the  very  existence  of  future  wealth  is  decided  on  the  same 
ground. 

We  have  said  that  wealth  has  its  generations.  The  life 
of  man  is  brief,  but  he  outlives  property.  A  few  articles  of 
value  may  endure  for  centuries  ;  but,  in  the  average,  their 
term  is  very  short.  Simply  by  wear  and  tear,  the  earth 
would  be  left  destitute  in  a  few  years,  if  no  provision  were 
made  for  reproduction.  Our  kind  is  placed  on  the  verge  of 
such  a  chance,  and  can  never  go  away  from  it.     The  dreary 


CHAP.  XII.]  RIGHT   CONSUMPTION.  467 

desolation  of  many  nations  illustrates  the  tremendous  pos- 
sibilities that  lie  in  the  use  made  of  wealth. 

We  are  accustomed  to  things  as  they  have  been.  It  is 
difficult  to  appreciate  even  that  which  we  know  might  be. 
There  is  no  economical  reason  why  every  people  on  the  face 
of  the  earth  should  not  be  rich,  prosperous,  and  independ- 
ent ;  every  person  free,  comfortable,  ambitious,  with  plenty 
at  hand,  and  every  thing  to  hope  for.  As  it  is,  the  homes 
of  competence  or  decency  are,  the  world  over,  hardly  more 
than  islands  struggling  up  from  the  ocean ;  a  few  spots  re- 
deemed from  misery  and  ruin. 

This  advance  towards  economic  good  is  not  a  piece  of 
work  to  be  paid  for  only  when  finished.  If  the  grand  result 
seems  hopelessly  distant,  every  step  towards  it  does  yet  re- 
ceive its  reward ;  every  effort  brings  something  of  fruition. 
No  government  or  individual  conforms,  for  a  single  act,  to 
right  principles  of  consumption  ;  but  the  community  gains 
palpably  by  it :  perhaps  the  "  last  straw  "  of  taxation  is  re- 
moved, or  a  capitalist  offers  employment  to  a  starving*  work- 
man. 

There  have  been  efforts  to  restrict  political  economy,  so 
that  it  should  have  no  occasion  to  ask  these  questions ;  to 
cut  off  all  that  view  which  looks  out  on  the  field  of  repro- 
duction ;  to  shut  up  our  inquiries  to  the  immediate,  present 
creation  of  wealth,  its  exchange,  distribution,  and  consump- 
tion, without  regard  to  ultimate  effects,  and  considering 
one  article  of  value  as  equally  commendable  with  any  for 
which  it  will  exchange.  Such  a  mode  of  treatment  prac- 
tically detaches  the  department  of  consumption  from  the 
science. 

A  sagacious  and  generally  correct  writer  *  has  even  gone 
so  far  as  to  announce,  "  if  a  laborer  is  willing  to  work 
all  day  for  a  quart  of  whiskey  to  get  drunk  upon,  political 
economy  does  not  question  his  wisdom." 

It  is,  of  course,  within  the  discretion  of  any  author  to 
*  Mr.  Newcombe,  in  his  "Financial  Polk)'." 


468  CONSUMPTION.  [book  v. 

confine  his  inquiries  so  narrowly,  and  to  erect  them  into  a 
consistent  system ;  but  such  a  system  will  have  little  of  that 
interest  which  attaches  to  a  scheme  that  considers  the  in- 
dustrial interests  of  man  as  a  whole,  and  for  all  time.  It 
may  be  a  science  of  political  economy,  but  not  the  science, 
as  we  choose  to  regard  it. 

If  the  laborer  expends  his  day's  earnings  on  a  quart  of 
whiskey,  he  will,  most  likely,  be  disabled  one  day  after.  The 
account  with  society  will  stand,  at  the  close  of  the  second 
day,  as  follows :  one  day's  work  done,  of  which  the  employer, 
and  consequently  society,  has  the  advantage  ;  no  wages  laid 
up  ;  something  taken  off  the  health  of  the  laborer,  and  the 
order  of  the  community.  But  if  the  earnings  are  spent  on 
tools  or  the  education  of  self  and  family,  or  on  personal 
support,  the  account  will  read  quite  otherwise :  two  days' 
work  done,  of  which  the  employer  and  society  obtain  the 
advantage ;  two  days'  wages  in  the  hands  of  the  laborer,  to 
be  applied  to  the  rearing  of  a  useful  and  self-respecting 
family,  to  the  maintenance  of  government,  to  the  increase 
or  perfection  of  tools,  or  to  wholesome  enjoyment  and  cul- 
ture. 

It  is  not,  of  course,  possible,  that,  from  a  moral  stand- 
point, there  can  be  any  question  as  to  the  importance  of  a 
right  consumption ;  but  does  not  the  same  interest  attach 
to  it  in  the  light  of  political  economy,  considered  merely  as 
seeking  to  effect  the  largest  production,  and  the  most  bene- 
ficent distribution  of  wealth  ?  We  do  not  ask  whether  such 
inquiries  cannot  properly  be  received  into  the  science,  but 
whether  any  scheme  can  be  respectably  complete  which  does 
not  embrace  them.  It  must  not,  of  course,  look  at  any 
question  in  a  purely  moral  light.  Yet  the  two  interests  will 
not  be  found  widely  and  permanently  apart.  Political 
economy  has  for  its  end  the  economic  good  of  society  on  the 
whole,  and  in  the  long-run.  It  does  not  limit  itself  to 
taking  a  section  of  the  trunk.  It  is  content  with  nothing 
but  the  ivhole  tree,  and  alive  at  that. 


CHAP.  XII.]  RIGHT  CONSUMPTION.  469 

We  have  used  a  phrase  which  explains  itself,  and  which 
has  already  received  various  illustrations  in  what  has  gone 
before.  But  it  may  be  worth  while  to  fix  and  detain  in 
positive  shape  the  general  impression  we  have  of  it. 

WHAT  IS  THE   ECONOMIC   GOOD? 

It  is  that  application  of  the  industrial  faculties  to  the 
agencies  of  matter  which  will  bring  out,  easiest  and  fullest, 
the  satisfaction  of  those  desires  which  are  healthful  and 
harmonious  in  the  nature  of  man. 

Does  this  imply  the  satisfaction  of  the  greatest  amount 
of  desires,  if,  indeed,  they  can  be  thus  spoken  of  in  aggre- 
gation ?  Not  necessarily,  by  the  terms  of  our  definition ; 
yet  practically  we  believe  it  is  true,  that,  taking  in  all  of 
life  and  the  whole  of  society,  a  greater  satisfaction  will  be 
obtained  by  ministering  to  those  desires  which  are  natural 
and  reasonable,  than  by  catering  to  artificial  tastes,  depraved 
appetites,  and  violent  passions. 

Does  it  imply  the  greatest  possible  creation  of  values  ? 

Again  we  say,  not  necessarily ;  and  yet  it  is  undoubtedly 
true,  that  there  is  no  surer  way  of  securing  the  best  satis- 
faction of  the  greatest  amount  of  desires,  than  by  striving 
for  the  accumulation  of  the  largest  possible  wealth.  There 
may  be,  will  certainly  be,  a  portion  of  such  wealth  that  does 
not  tend  to  improve  its  possessor,  either  as  to  character  or 
condition ;  there  will  be  a  portion  that  will  not  receive  its 
best  application,  either  morally  or  economically,  just  as  the 
nourishing  rain  falls  not  less  on  the  streams  that  do  not 
need  it,  and  on  the  stony  ground  that  will  not  profit  by  it, 
than  upon  the  grass  and  the  grains  that  are  thirsty  for  it, 
and  will  repay  it  in  a  plentiful  harvest.  But  this  is  the  way 
of  earth.  If  human  laws  and  institutions  do  not  interfere 
to  prevent,  the  natural  order  of  things  will  be  sure  to  bring 
out  the  best  physical  condition  of  mankind,  through  the 
greatest  creation  of  values. 


470  CONSUMPTION.  [rook  V. 

It  will  be  observed,  that  this  definition  of  the  economic 
good  requires  an  equitable  distribution  of  wealth,  since  the 
desires  of  one  can  be  but  poorly  satisfied  out  of  the  posses- 
sions of  another.  We  should  therefore  regard  with  more 
complacency  a  certain  amount  of  values,  fairly  divided,  than 
a  much  greater  amount  heaped  in  wasteful  and  unjust  ag- 
gregations, or  bestowed  on  those  that  can  neither  employ 
nor  enjoy  it.  But  this,  again,  we  leave  to  the  operation  of 
natural  laws,  when  undisturbed  by  legislation  and  prescrip- 
tion, confident  that  a  better  state  of  things  will  result'  than 
can  be  brought  about  by  man's  wisdom. 

To  sum  up,  then  :  Although  much  may  be  produced  that 
does  not  satisfy  any  wholesome  or  lawful  desire  of  man's 
being ;  although  much  inequality  and  injustice  may  take 
place  in  distribution,  which  shall  so  far  neutralize  the  bounty 
of  nature,  and  the  industry  of  man  ;  and  although  the 
greatest  wealth  is  not  logically  coincident  with  the  highest 
economic  good,  —  we  can  yet  accept  the  former  as  the  end 
and  aim  of  our  science,  satisfied  it  is  in  this  shape  that  the 
latter  is  to  come  to  us. 


APPENDIX 


APPENDIX. 


GOLD. 

As  a  commodity.  —  California  as  a  gold-producing  State. — Rise  and 
progress  of  the  gold  premium  in  the  United  States.  —  Tables  and 
diagram.  —  Causes  of  fluctuations  in  the  premium. — Influence  of 
gold  on  prices.  — Effects  of  gold  discoveries  on  trade  with  India  and 
China.  —  Tables.  —  Gold  mining  in  relation  to  national  indebted- 
ness. —  General  production  as  influenced  by  an  increased  production 
of  gold.  —  Conclusions. 

AS   A   COMMODITY. 

Gold  has  often  been  referred  to  in  the  preceding  work.  Its  use  as 
currency,  and  its  position  in  the  commerce  of  the  world,  have  been  de- 
scribed ;  but  its  importance  in  both  these  relations  is  so  great,  and  the 
changes  that  have  taken  place  in  regard  to  its  production  and  use  are  so 
remarkable,  that  a  farther  and  more  critical  examination  of  the  subject 
seems  desirable. 

Under  the  term  "  gold,"  in  the  following  discussion,  we  shall,  when 
speaking  of  its  connection  with  the  currency,  include  silver,  its  less  valu- 
able, but  not  less  useful  companion.  Both  are  subject  to  the  same  laws ; 
and,  though  they  may  differ  in  value  in  relation  to  each  other,  yet,  as 
forming  together  the  medium  of  circulation,  and  the  standard  of  value 
amongst  the  nations  of  the  earth,  they  can  be  placed  in  the  same  category. 

We  propose  first  to  speak  of  gold  as  a  commodity,  like  lead  or  iron. 

The  value  of  gold  is  determined  by  the  established  law  of  supply  and 
demand ;  its  cost,  by  the  labor  required  to  produce  it. 

No  more  interest  attaches  to  gold  than  to  iron,  regarded  merely  as  a 
merchantable  commodity,  nor,  in  fact,  so  much,  in  the  economy  of  pro- 
duction, since  the  latter  has  ten  utilities  to  where  gold  has  one ;  and,  as 
necessary  to  human  progress  and  welfare,  iron  may  be  regarded  as  a 
hundred  times  more  indispensable  than  gold.  Each  has  its  proper  place 
in  the  economy  of  the  world. 

Gold  has  no  price,  because  it  is  price  itself. 

In  the  constitutional  currency  of  the  United  States,  gold  of  standard 
fineness  always  has  one  price.  It  can  have  no  other ;  Congress  having  or- 
dained, that  2oT8¥  grains  of  gold,  nine-tenths  fine,  shall  be  a  coin  called 
a  dollar,  and  the  people  having  accepted  that  as  the  unit  of  value.  Sup- 
pose, therefore,  that  the  California  miner  produces  one  hundred  pounds 
weight  of  gold  :  is  there  any  question  as  to  what  the  price  of  his  gold  will 


474  APPENDIX. 

be?  Not  at  all.  It  is  worth  as  many  dollars  as  25^  grains,  of  standard 
fineness,  are  contained  in  the  hundred  pounds  weight.  Its  value  is  fixed 
beyond  any  possibility  of  change.  It  measures  its  own  value.  The 
miner  can  get  just  so  many  dollars,  and  no  more. 

If  the  currency  of  the  United  States  consisted  exclusively  of  coin,  — 
that  is,  gold  notes,  or  certificates  for  coin  deposited,  — the  producer  of 
gold  would  be  absolutely  certain  of  obtaining  the  full  value  of  his  com- 
modity,  because  all  other  commodities  would  be  measured  by  his  own. 
There  could  be  no  chance  for  any  mistake  in  the  case.  He  would  be 
certain  of  justice  in  exchanging  his  gold  for  any  article  he  might  wish  to 
purchase. 

If  instead  of  this,  however,  the  government  should  authorize  the  issue 
of  promises  to  pay  gold,  instead  of  the  gold  itself,  and  allowed  these 
promises  to  be  issued  beyond  the  amount  of  specie  held  for  their  redemp- 
tion, the  case  would  at  once  be  greatly  changed :  and,  when  the  miner 
came  to  exchange  his  gold  for  commodities  measured  by  this  vitiated 
standard,  he  would  receive  a  less  quantity  than  was  rightfully  his  due. 

POSITION   OF   CALIFORNIA  AS   A   GOLD-PRODUCING  STATE. 

We  perceive,  from  what  has  been  said,  how  disadvantageous  to  Cali- 
fornia must  have  been  the  mixed-currency  system  of  the  United  States, 
even  prior  to  the  war.  Her  gold,  which  cost  labor  and  had  actual  value 
was  placed  upon  a  par  with  the  paper  currency  of  the  banks  of  other 
States,  which  cost  no  appreciable  labor,  and  whose  value,  in  consequence 
of  its  redundancy,  was  less  than  it  would  have  been  if  it  only  equalled 
the  specie  held  for  its  redemption. 

How  great  per  cent  this  loss  was,  it  is  difficult  to  calculate  with  precis- 
ion ;  but  it  must  have  been  considerable,  —  sufficient  to  make  an  impor- 
tant difference  to  a  State  whose  great  staple  was  gold. 

Prior  to  the  Rebellion,  the  actual  loss  to  the  people  of  the  gold-pro- 
ducing State  was  not  so  striking  as  to  attract  general  attention.  A  few 
persons,  who  bestowed  careful  attention  upon  the  subject,  discovered 
very  clearly  the  unfavorable  influence  of  a  mixed  currency  upon  the 
pecuniary  interests  of  California ;  but  the  masses  were  unconscious  of 
the  extent  of  the  injuries  they  suffered. 

The  war,  however,  brought  the  whole  matter  out  in  bold  relief,  after 
the  suspension  of  specie  payments  by  the  government  and  banks,  and 
the  simultaneous  act  of  Congress,  by  which  treasury-notes  were  made  a 
legal  tender. 

California,  in  accordance  with  a  provision  in  her  Constitution,  had  an 
exclusively  metallic  currency.  The  35th  section  of  that  instrument  pro- 
vides that  "the  Legislature  of  this  State  shall  prohibit  by  law  any  per- 
son or  persons,  association,  company,  or  corporation  from  exercising  the 
privilege  of  banking,  or  creating  paper  to  circulate  as  money." 


APPENDIX.  475 

To  protect  herself  against  the  depreciated  currency  of  the  United 
States  (the  greenbacks),  the  Legislature  of  California  enacted.  April 
27,  1863,  a  Special  Contract  Law,  one  section  of  which  provided,  that, 
"  in  an  action  on  a  contract  or  obligation  in  writing  for  the  direct  pay- 
ment of  money,  made  payable  in  a  specified  kind  of  money  or  currency, 
judgment  for  the  plaintiff,  whether  the  same  be  by  default  or  after  ver- 
dict, may  follow  the  contract  or  obligation,  and  be  made  payable  in  the 
kind  of  money  or  currency  specified  therein." 

Under  this  law,  the  business  of  the  State  has  been  conducted  to  the 
present  time  (1867),  and  doubtless  will  continue  to  be  so,  until  the  legal- 
tender  notes  of  the  national  government  are  restored  to  their  par  value 
in  gold. 

Greenbacks,  up  to  this  time,  have  been  sold  in  California  at  their 
value  in  gold;  while,  in  other  States,  the  gold  has  been  sold  at  its  value 
in  greenbacks. 

By  this  arrangement,  a  great  part  of  the  injustice  and  wrong  to  which 
the  people  of  other  States  have  been  exposed,  has  been  saved  to  the 
people  of  California. 

But  the  State  has  still  suffered  very  great  injustice  in  her  connection 
with  the  general  government  as  one  of  the  States  of  the  Union ;  because, 
although,  as  between  her  own  citizens,  justice  was  secured,  yet,  as  be- 
tween them  and  the  citizens  of  other  States,  she  had  no  remedy.  She 
must  purchase  commodities  which  were  manufactured  or  created  in 
other  States,  under  an  inflated  currency,  at  prices  double  their  true 
value.  She  must  receive  all  her  imported  goods,  whether  brought  di- 
rectly to  her  own  market  or  through  the  ports  of  other  States,  subject 
to  the  duties  imposed  by  the  general  government,  and  saddled  with  the 
premium  on  gold,  and  the  profits  charged  on  that  premium,  by  the  im- 
porters and  others,  through  whose  hands  the  goods  might  pass.  The 
aggregate  loss  to  this  gold-producing  State  is  undoubtedly  very  great. 
If  the  State  has  produced,  up  to  this  time  (October,  1867) ,  one  thousand 
millions  in  gold,  as  is  nearly  the  fact,  and  has  lost  upon  the  whole,  in 
consequence  of  the  use  of  mixed  currency  in  the  Union  with  which  she  is 
connected,  but  fifteen  per  cent,  the  aggregate  would  be  one  hundred 
and  fifty  millions  ;  a  heavy  loss  for  a  young  State  encountering  all  the  ex- 
pense and  hardships  incident  to  the  first  settlement  of  a  country.  This 
loss  has  been  estimated  at  a  much  greater  sum  by  one  of  her  own  citi- 
zens, John  Alexander  Ferris,  Esq.,  in  his  "Financial  Economy  of  the 
United  States  Illustrated,1'  published  in  San  Francisco  and  New  York, 
1867  ;  to  which  able  work  we  would  refer  our  readers  for  a  full  view  of 
the  subject  in  its  various  bearings. 

From  the  foregoing  statement,  it  will  be  seen,  that  an  antagonistic 
interest  has  been  created  between  the  gold-producing  and  non-gold-pro- 
ducing States  which  will  be  likely  to  terminate  in  a  struggle  between  the 


47G 


APPENDIX. 


parties.  The  antagonism  is  absolute  and  irreconcilable,  and  must  con- 
tinue until  the  difficulty  is  removed;  and  that  only  can  be  done  by  the 
withdrawal  of  the  false  currency. 


KISE   AND   PPOGKESS   OF   TIIE   GOLD   PREMIUM. 

The  national  treasury  and  the  State  banks  having  suspended  specie 
payment  on  the  31st  day  of  December,  1861,  a  premium  was  immediately 
demanded  upon  gold.  It  was  slight  at  first, — the  highest  point  for  some 
months  but  about  five  per  cent.  After  the  1st  of  July  following,  it  began 
to  rise  rapidly,  until,  before  the  close  of  the  year,  it  had  advanced  to  37£ 
per  cent.  From  that  time  forward,  the  fluctuations  were  rapid,  and  often 
violent.  We  give  below,  from  the  "  Bankers'  Magazine"  of  April,  1867, 
a  table  showing  the  monthly  prices  for  five  years. 

The  Monthly  Range  of  Premium  on  Gold,  from  January,  1862,  to  December,  1866, 
has  been  as  follows:  — 


January 

February 

March 

April 

May 

June 

July 

August 

September .... 

October 

November  .... 
December  .... 

Average 

„    for  5  years 


1862. 

Par@    5 

2}@    4| 

1}  @    2} 

1J@    2i 

2}@    4} 

3}@    9} 

9    @20} 

12}  @  16J 

16}  @  24 

22    @37 

29    @33£ 

30    @34 

131 

1863. 


34  @60| 
53  @72} 
39    @71| 

46  <•  59 
43}  @  55 
40',  „■  -i*7 
23'  "  t;' 
•2-2'  „  -V.'] 
27  @43| 
40|  a  56| 
43    @54 

47  @52| 
46£ 


1864. 


51}  @    60 

57}  @    61 

59    @    69| 

661  @    87 

68    @    90 

89    @151 

122    @  185 

131}  @  162 

85    @  155 

89    @  129 

109    @  160 

111    @  144 

1031 


1865. 


97}  @  134} 
96|@  116| 
48$  w  101 
44    @    60 
28|@    45J 
■■-.      -      17 
38    @    46} 
40}  @    45| 
42|  @    45 
44    @    49 
45}  @    48| 
44}  @    46| 
58 


1866. 


36|  @  44| 
35|  @  41£ 
25  @  36} 
25  @  29} 
25j  a  \u 
37|  ".07J 
48|  @  551 
46}  @  521 
44  @46| 
45f  @  54} 
■■■'  „  iv< 
31i  @  41| 

411 

52} 


The  average,  from  July  1,  1862,  to  1865,  the  three  years  when  tlie  war  expen- 
ditures were  largest,  was  68|  per  cent. 

Table  showing  the  extreme  Quarterly  Fluctuations  of  the  Gold  Premium,  as  exhib- 
ited in  annexed  Diagram. 


Years. 

Currency. 

Premium. 

Average. 

1862 

470  Millions. 

1st  Qr. 
4f 

2d  Qr. 
If 

3d  Qr. 

20J 

4th  Qr. 
37} 

15}  per  an. 

1863 
1864 

850         „ 
1070         „ 

72| 

702 

40* 
661 

23} 
185 

57 
89 

48*      „ 
102}      „ 

1865 
1866 
1867 

1159         „ 
1358         „ 
1300         „ 

134} 
25 
40 

28} 
67" 
35 

46} 

44 

46} 

49 
54} 

64        „ 

47i      „ 

General  quarterly  average  of  premium,  from  1862  to  1865  inclusive,  as  per  the 
above  table,  55}.* 

An  illustration  of  this  table  is  given  in  the  annexed  diagram. 

*  For  a  complete  view  of  the  daily  fluctuations  in  gold  premium,  we  refer  the 
reader  to  Gold  Chart,  issued  by  Ernest  L.  Meyer,  published  in  New  York  in  1865. 


Showing  the  extreme  </n<irt<r/y  fluctuations  in  f/otrt 
from  Jon./   1862  to  0ctfSG7. 


lir'ttw/ni 

/M/Cfllt. 

IS.) 
ISO 
17.1 
170 
165 
I  GO 
155 
150 
145 

ik) 

155 
150 
125 

120 
115 

110 

105 

100 

95 

90 

85 
so 
75 
70 
05 
(10 


I  s  (i  L 


18 .6  3 


50 

V) 
U) 
55 
50 
25 
20 
15 
10 


IS  6  2 


lS(il 


~L_1 


Gold 
Premium 


3  8  6  6 


ZT 


11o7Mtt 


I  sf,7 


I  S  6  6 


S.jOJJ/tt. 

\--\  8  6  3 


i07()Mtt.\ 
I  8  6  \< 


I  s  6  5 


fiemium 
per  Gent. 
1ST 
ISO 
L75 
170 
165 
160 
155 
150 
141 
140 
155 
150 
125 
120 
115 
110 
105 
100 

.90 
85 
SO 
75 
70 
05 
00 
55 
50 

40 
55 
50 
25 
20 
15 
"  10 
5 


is  0  7 


Currency 


J70J/r/t. 

I  so  2 


APPENDIX.  477 


THE   CAUSES   OF   FLUCTUATIONS   LN   THE   GOLD   PREMIUM. 

Gold,  when  measured  by  itself,  —  that  is,  by  the  universal  commercial 
standard  of  value,  —  can  never  command  a  premium.  It  is  always  pre- 
cisely at  par.  Premium,  as  a  term  applied  to  gold,  simply  expresses  the 
depreciation  of  the  standard  by  which  it  is  measured,  and  is  more  prop- 
erly a  discount  on  the  latter  than  a  premium  on  the  former.  It  is 
customary,  however,  to  speak  of  the  premium  on  gold,  without  reference 
to  the  standard  by  which  it  is  measured. 

The  gold  premium,  as  it  has  existed  in  the  United  States  since  1862, 
may  be  said  to  have  been  influenced  by  six  different  causes  :  — 

1.  The  Inconvertibility  and  Redundancy  of  the  Currency. — The  moment 
a  currency  becomes  inconvertible  on  demand,  gold  will  command  a  pre- 
mium. The  banks  and  national  treasury  having  suspended  on  the  31st 
December,  1861,  for  the  first  four  months  of  1S62  the  premium  on  gold 
averaged  only  about  three  per  cent ;  and,  had  there  actually  been  at  that 
time  no  larger  amount  of  currency  than  would  have  existed  if  the  cur- 
'rency  were  a  wholly  metallic  or  certified  one,  the  premium  would  not 

have  gone  beyond  three  to  five  per  cent :  but  the  currency  was  at  this 
time  somewhat  redundant,  and  was  rapidly  augmented,  until  200  per 
cent  above  its  natural  volume. 

2.  A  second  cause,  or  element,  loas  the  discredit  of  the  Government.— 
From  the  first,  there  was  some  fear  that  the  Rebellion  might  succeed.  In 
that  case,  the  Union  would  be  broken  up :  and  whether  the  loyal  States 
would  go  on  together,  or  separate  into  several  different  confederacies  or 
nationalities,  was  a  matter  of  great  uncertainty.  Therefore  a  large 
degree  of  suspicion  attached  to  the  promises  of  the  government,  aud  the 
public  credit  fluctuated  with  the  fortunes  of  the  war. 

At  times  the  national  credit  was  exceedingly  depressed :  as,  for  ex- 
ample, during  the  first  three  months  of  1863,  subsequent  to  the  disastrous 
events  around  Fredericksburg;  and  again  when  Pennsylvania  was 
invaded,  just  prior  to  the  victories  of  Gettysburg  and  Vicksburg ;  and, 
lastly,  in  the  gloomy  winter  of  1864,  and  during  General  Grant's  cam- 
paign against  Richmond,  fighting  the  battles  of  the  Wilderness,  Spotsyl- 
vania, Cold  Harbor,  &c.  This  discredit  was  at  times  so  great  as  to 
cause  large  shipments  of  specie  to  Europe,  for  safe  keeping,  by  those 
who  did  not  dare  to  trust  their  funds  at  home.  This  may  be.  seen  in  the 
excess  of  exports  over  imports  in  the  years  of  1863  and  1864,  and  the  large 
amount  of  gold  exported  in  those  years  {Financial  Report,  1864,  p.  273). 
That  this  discredit  of  the  national  securities  arose  from  the  uncertainty 
of  the  manner  in  which  the  war  might  terminate,  is  proved  by  the  rapid 
and  permanent  decline  of  the  gold  premium  as  soon  as  the  rebel  armies 
had  surrendered. 

3.  Political  Movements .  —  The  success  of  the  party  in  opposition  to  the 


478  •  APrENDix. 

war,  in  the  elections  held  in  the  fall  of  1862,  had  much  effect;  and  the 
gold  premium  went  up  from  'Mh  in  October,  to  72  in  February  following. 
The  public  anxiety  was  increased  by  the  dilatory  action  of  Congress  in 
the  session  of  1802  and  1863,  which  did  not  pass  the  Appropriation, 
Loan,  and  Currency  Bills  until  the  3d  day  of  March,  or  the  day  before 
its  expiration. 

But  the  most  instructive  and  remarkable  fact  connected  with  the  action 
of  Congress  was  the  passage  of  the  Gold  Bill,  so  called,  "prohibiting 
the  sale  of  "old  in  certain  cases."  This  law  was  intended  to  stop  the 
sale  of  gold  as  far  as  possible,  especially  to  prevent  speculation  in  gold. 

The  result  was  what  all  intelligent  men  confidently  predicted.  The 
premium  advanced  with  great  rapidity,  from  97  on  the  17th  of  June, 
1864,  the  day  the  bill  was  passed,  to  180  on  the  1st  of  the  next  month. 
Although  Congress  soon  discovered  its  error,  and  made  haste  to  retrace 
its  steps,  repealing  the  mischievous  law  on  the  6th  of  July,  great 
damage  accrued  to  the  national  credit,  and  the  interests  of  the  country 
generally. 

4.  The  Operations  of  Treasury  Department: — We  will  first  refer  to' 
the  condition  of  the  treasury  in  the  second  quarter  of  1863.  Congress 
had,  during  its  session  closing  March  4  of  that  year,  placed  in  the 
hands  of  the  Secretary  of  the  Treasury  power  to  issue  bonds,  compound- 
interest  notes,  and  greenbacks,  —  in  all,  with  what  he  had  on  hand, 
$1,200,000,000.  This  raised  the  credit  of  the  government.  The  5-20 
bonds  at  six  per  cent  sold  with  wonderful  rapidity;  and  the  premium  on 
gold,  which  at  the  adjournment  of  Congress,  on  the  4th  of  March, 
was  65,  fell  to  40.  The  victories  of  Gettysburg  and  Vicksburg  carried 
the  premium  down  to  23  \  during  the  month  of  July  following.  The  sale 
of  the  5-201s  having  been  made  so  successfully,  the  minister  of  finance 
changed  his  policy,  and  instead  of  issuing  his  10-40's  at  six  per  cent,  as 
lie  had  been  authorized  to  do,  reduced  the  rate  to  five  per  cent. 

This  proved  a  disastrous  experiment.  The  sale  of  bonds  fell  off  at 
once  from  two  millions  per  day  to  only  a  tenth  of  that  sum.  But  that 
was  not  all,  or  the  worst :  for,  by  reducing  the  rate  of  interest  from  six 
to  five,  the  Secretary  virtually  depreciated  his  own  currency  by  the  dif- 
ference, because  it  required  -SI. 20  in  greenbacks  to  purchase  an  equal 
income  or  interest  at  five  per  cent,  which  $1.00  would  purchase  of  bonds 
bearing  interest  at  six  per  cent ;  and  consequently  the  gold  premium 
rose  20  per  cent.  This  falling-off  in  the  sale  of  the  bonds  necessitated 
the  issue  of  legal-tender  notes,  which  raising  prices  greatly  increased 
the  expenses   of  the  government. 

Then,  again,  the  Secretary  had  authority  to  issue  four  hundred  million 
dollars  in  compound-interest  notes  at  six  per  cent,  of  such  denomina- 
tions as  would  be  adapted  to  the  wants  of  the  government  in  paying  off 
the  troops  and  contractors.     These,  if  thus  issued,  it  was  believed,  and 


APPENDIX.  479 

as  subsequent  events  proved,  would  be  speedily  hoarded;  and  thus, 
■while  thev  did  not  expand  the  currency  essentially,  inflate  prices,  or  in- 
terfere with  the  sale  of  the  bonds,  would  operate  as  a  six  per  cent  loan 
to  the  government,  payable  in  currency.  But  the  Secretary  took  a  dif- 
ferent course  frorn  the  one  intended  by  Congress.  He  issued  fifty  mil- 
lion dollars  at  five  per  cent  on  two  years,  in  fifty-dollar  notes  and 
upwards. 

These,  all  or  mostly,  went  directly  into  the  banks  of  Philadelphia, 
New  York,  and  Boston,  where  they  displaced  and  drove  into  circulation 
fifty  million  dollars  of  greenbacks  and  bank-notes.  This,  it  will  be  seen, 
instead  of  benefiting  the  treasury,  absolutely  made  matters  worse,  ex- 
panding the  circulation  and  raising  prices,  when  government  was 
making  purchases  at  the  rate  of  one  or  two  millions  per  day ;  so  that, 
notwithstanding  the  brilliant  successes  in  war  just  referred  to,  gold  be- 
fore long  went  up  to  100.  Of  the  six  per  cent  compound-interest  notes 
adapted  to  circulation,  the  Secretary  issued  none  for  some  fifteen  months 
after  he  was  authorized  to  do  so,  and  then  only  fifteen  million  dollars. 
These  were  paid  out  by  the  government,  and  were  immediately  hoarded. 
They  disappeared  at  once,  showing  most  conclusively  that  they  answered 
precisely  the  object  sought  to  be  obtained  by  the  issue  of  them.  More 
of  these  compound-interest  notes  were  subsequently  issued  by  Secretary 
Fessenden.  But  they  were  of  large  denominations,  and  went  mostly 
into  the  banks,  where,  contrary  to  law,  they  were  held  as  a  legal- tender 
reserve ;  and  in  so  far  the  design  of  Congress  in  authorizing  their  issue 
was  utterly  thwarted.  Had  the  whole  amount  authorized  been  issued 
promptly,  as  fast  as  they  were  wanted  to  pay  the  current  expenses  of 
government,  the  necessity  of  issuing  greenbacks  would  to  a  great 
extent  have  been  avoided ;  and  snch  an  enormous  rise  of  premium  and 
prices  as  took  place  in  1863-4,  in  consequence  of  their  excessive  issue, 
would  have  been  prevented. 

5.  Sales  of  Gold  by  the  Secretary  of  the  Treasury.  — But,  as  another 
and  very  important  matter,  we  must  notice  the  direct  operations  of  the 
Secretary  of  the  Treasury  in  the  gold  market. 

Owing  to  the  fact  that  the  gold  received  for  duties  amounted  to  a 
much  larger  sum  than  necessary  to  pay  current  interest  upon  the  bonds 
issued,  the  treasury  had  a  large  amount  at  its  disposal ;  so  large,  that 
if  the  Secretary  were  disposed  to  enter  the  market,  in  technical  language, 
as  "  a  bear,"  he  could  to  a  great  extent  determine  what  the  price  of 
gold  should  be  at  any  given  moment.  He  was  authorized  to  sell  gold, 
and  has  done  so  ;  holding,  as  he  has  oftentimes  done,  fifty  to  seventy-five 
millions,  he  has  been  able  to  bear  down  the  market  below  what  it  would 
be  if  there  were  no  such  vast  accumulation  at  his  disposal.  It  would 
seem,  by  his  acts,  that  he  has  deemed  it  for  the  public  interest  to  keep 
the  price  of  gold  as  low  as  possible.     This  being  understood  to  be  the 


480  APPENDIX. 

Secretary's  policy,  of  course  no  one  dares  operate,  to  any  great  extent, 
"  for  a  rise,"  because  his  movement  could  be  easily  frustrated. 

Notwithstanding  all  this,  however,  the  price  of  gold  has  been  gradually 
advancing  from  its  low  point  of  about  twenty-five  per  cent  in  March, 
April,  and  May,  1866,  to  forty-five  per  cent  at  the  present  time  (Sep- 
tember, 1867).  And  the  last  we  believe  to  be  nearly  its  natural  value,  as 
measured  by  our  superabundant  currency. 

6.  Speculation.  —  Another  cause  of  variations  in  the  gold  premium 
arose  from  the  action  of  speculators. 

History  probably  affords  no  parallel  upon  so  extensive  a  scale  of  op- 
erations. Millions  were  made  or  lost  in  a  day  in  New  York,  the  great 
centre,  by  fluctuations  in  the  market,  occasioned  often  by  the  acts  of 
speculators  themselves,  combining  to  raise  or  depress  the  premium  by 
starting  rumors,  favorable  or  adverse,  as  their  particular  interest  might 
dictate ;  yet  as  the  premium,  with  various  alternations,  was  constantly 
advancing,  until  it  attained  the  well-known  elevation  of  185  per  cent,  it 
is  obvious  there  were  abundant  opportunities  for  the  realization  of  for- 
tunes by  those  shrewd  enough  to  take  advantage  of  passing  events.  But 
it  should  be  remembered,  that  speculation  is  to  be  mainly  regarded  as 
one  of  the  natural  effects  of  an  abnormal  state  of  affairs,  incident  to  a 
forced  credit  currency,  and  the  hazards  and  uncertainties  of  a  long  and 
doubtful  conflict,  rather  than  a  permanent  cause  of  high  premium. 
There  is  little  speculation  now,  because  there  is  comparatively  little 
uncertainty  in  regard  to  national  affairs.  The  contingencies  of  war  have 
passed  by. 

Lastly,  we  may  remark  that  the  price  of  gold,  like  that  of  any  other 
article,  has  been  influenced  by  demand  and  supply:  as,  for  example, 
when  the  article  was  especially  wanted  for  export,  or  to  pay  duties ;  or, 
on  the  other  hand,  when  large  amounts  were  paid  off  for  coupons,  or  re- 
ceived from  the  mines. 

All  these  various  considerations  must  be  taken  into  account,  if  we 
would  form  a  correct  opinion  of  the  causes  which  have  had  the  effect  to 
raise  or  depress  the  premium  on  gold  for  the  last  five  years. 

INFLUENCE   OF   TIIE   GOLD  PREMIUM   ON  PRICES. 

Prices,  since  the  suspension  of  specie  payments,  have  been  greatly 
influenced  by  the  existing  premium  on  gold.  In  the  years  1863  and  1864 
especially,  gold  was  potential  in  determining  the  price  of  commodities. 
They  rose  and  fell  with  it.  Since  the  close  of  the  war,  on  the  other 
hand,  prices  in  general  have  been  little  affected  by  the  gold  premium, 
except  in  regard  to  foreign  imports,  which  of  course  have  corresponded 
in  cost  to  the  value  of  gold,  because  premium  is  an  element  of  the  cost. 
But  other  commodities  do  not  feel  these  fluctuations,  as  during  the  war. 


APPENDIX. 


481 


Why  not?  Evidently,  because  domestic  products,  not  required  for 
export,  are  measured  by  the  domestic  currency  alone.  The  reason  why, 
during  the  years  1863  and  1864,  all  prices  kept  pace  with  the  price  of 
gold  was,  that,  the  currency  and  securities  of  the  government  being 
greatly  discredited,  gold  was  regarded  as  the  really  only  safe  investment 
and  standard  of  value.  Greenbacks  were  merely  the  promise  of  value, 
the  fulfilment  of  which  was  doubtful.  Gold  had  reliable  value  in  itself, 
and  therefore  was  largely  hoarded,  and,  as  we  have  seen,  exported,  in 
the  two  years  just  mentioned,  to  the  extent  of  more  than  one  hundred 
million  of  dollars.  Except  so  far  as  foreign  products  are  concerned, 
gold  does  not  now  (1867)  influence  the  value  of  commodities  in  general, 
any  more  than  flour,  or  any  other  article  of  merchandise  ;  for  it  is  itself, 
under  present  circumstances,  as  truly  merchandise  as  corn  or  cotton. 

EFFECT   OF   GOLD   DISCOVERIES   ON   TRADE   WITH   THE   EAST. 

The  economical  advantages  derived  from  the  increase  in  gold  pro- 
duction, if  there  be  any  of  much  account,  accrues  mostly  to  the  people 
of  the  East, — to  India,  China,  &c.  As  they  use  coin  exclusively,  the 
surplus  gold  production  of  Christendom  naturally  flows  off  to  them.  By 
the  unwonted  influx  of  the  precious  metals,  their  products  are  advanced 
in  value  ;  and,  for  all  their  exports  to  Europe  and  the  United  States,  they 
get  greater  prices.  As  they  export  more  commodities  than  they  import, 
they  receive  the  balance  in  gold  and  silver. 

From  information  furnished  by  a  mercantile  house  in  Boston,  engaged 
in  the  India  trade,  we  construct  the  following  table,  showing  the  price 
of  seven  of  the  chief  exports  of  Calcutta,  for  the  first  five  years  after  the 
gold  discovery,  viz.  1850  to  1854,  inclusive  ;  and  for  the  last  five  years, 
up  to  1867.  The  prices  are  taken  as  they  existed  at  the  1st  of  July  of 
each  year.  We  have  before  us  the  prices  for  the  entire  period  of  eighteen 
years,  but  give  only  the  first  and  last  five  years,  to  save  space. 


Prices  of  Seven  of  the  Chief  Exports  of  Calcutta,  for  five  years,  1850  to  1854 
inclusive,  and  five  years  from  1863  to  1867  inclusive,  showing  the  advance  since 
the  new  gold  discoveries. 


1850. 

1851. 

1852. 

1853. 

1854. 

1863.    1864. 

1 

1865.  1  1866. 

1867. 

6    6 
3  10 
12    C 
2    9 
27    0 
39    0 
16    0 

6    9     6    3i    6    6 
3    2     2    9     3  10 
9  14    10    0i  12    2 
2     4      9.     A\     9.     ft 

6  12 
3  10 
12    0 
3    3 
34    0 
46    0 
12    8 

5    2 

3  5 

14    4 

4  6 
32    0 
60    0 
21    0 

Gunny  Cloth. 
„       Bags  . 

2  12     3    0     3  13 
16    8    19    4   15    8 

4    5     4    6     4    8 
35    0   38    01  36    0 
68    0   68    0   55    0 

4  5 
16    0 

4  10 
32  0 
50  0 
20    0 

Cow  Hides 
Buffalo  „     .  . 
Jute 

30    0 
38    0 
9    8 

27    0   27    8 
37    0,  39    0 
10    0|  16    8 

106    9 

99    5 

95    0  107  11 

118    1 

156    1162    4 

138    5 

132  15 

140    1 

The  currency  in  the  above  table  is  aDnas  and  rupees,  — 16  annas  to  the  rupee. 


31 


482 


APPENDIX. 


From  this   it  appears,    that  the   aggregate    price   from   1850 

to  1854,  inclusive,  live  years,  was 527     2 

Ditto  1863  to  1867,  five  years 729     9 

Difference 202    7 

which  is  equal  to  a  rise  in  price,  between  the  first  five  and  last  five  years 
of  the  period,  of  38.3  per  cent. 

The  same  rise  of  prices  is  shown  by  the  Report  of  the  British  Commis- 
sioners of  Customs  for  I860,  as  quoted  by  the  United-States  Revenue 
Commissioners  in  their  Report,  1865-6,  page  57,  from  which  we  construct 
the  following :  — 

Table   showing  the  Average  Price  of  Tea  in  Bond  in  London,  from  1848  to  1864, 

inclusive. 


Average  price  of 

Average  price  of 

Year. 

Tea  per  pound 

Year. 

Tea  per  pound 

in  bond. 

in  bond. 

s.      d. 

s.      d. 

1848 

1     ojt 

1857 

1     5tV 

1849 

1       1 

1858 

1       4| 

1850 

1       3i 

1859 

1       6| 

1851 

1       2J 

1860 

1       6| 

1852 
1853 

1       0* 
1       Si 

1861 

1       5 

1854 

1       3i 

1862 

1        7-3- 

1         '16 

1855 

1       3 

1863 

1     6H 

IS  50 

1       2| 

1864 

1       61 

Taking  the  price  in  1848,  viz.  Is.  O^d.,  and  the  price  in  1864,  viz. 
Is.  64/Z.,  the  advance  is  forty-nine  per  cent;  but,  if  we  take  the  first  five 
years  of  the  time,  it  will  average  Is.  14/7.,  and,  for  the  last  five  years, 
Is.  6i(Z.,  ecpial  to  thirty-eight  per  cent  advance.  Other  causes  operating 
at  the  same  time  may  have  caused  a  part  of  this  large  advance  in  the 
merchandise  of  China  and  India ;  but  the  enlargement  of  the  currency 
throughout  the  Eastern  world,  by  the  shipment  of  specie  from  Europe 
and  the  United  States,  must  have  been  the  principal  cause  of  such  a  large 
and  regular  advance  in  prices.  [2P  The  correspondence  between  the 
rise  of  Indian  and  Chinese  commodities,  as  given  in  our  tables,  is  very 
remarkable,  and  goes  far  to  prove  that  both  are  affected  by  the  same 
general  cause;  viz.,  an  increase  in  the  volume  of  currency. 

This  process  seems  destined  to  go  on  for  a  long  period  to  come  ;  until, 
in  fact,  the  equilibrium  is  restored  between  the  hard-money  countries  of 
the  East,  and  the  paper  and  mixed  currency  countries  of  the  West. 
The  East  will  continue  to  receive  bullion,  and  pay  for  it  with  a  con- 
stantly diminishing  quantity  of  their  products. 

GOLD   MIXING   IX   RELATION   TO   NATIONAL  INDEBTEDNESS. 

By  many  persons,  the  fact  that  there  are  within  the  United  States 
deposits  of  gold  supposed  to  be  inexhaustible  is  regarded   as   adding 


APPENDIX.  483 

greatly  to  the  stability  of  the  national  credit,  inasmuch  as  these  afford 
extraordinary  facilities  for  discharging  the  public  debt. 

But  this  can  be  true  only  on  the  supposition  that  gold  mining  is  more 
profitable  than  other  branches  of  industry,  and  therefore  increases  more 
rapidly  the  national  wealth,  and  of  course  the  ability  to  meet  a  heavy 
taxation. 

It  matters  not  at  all  what  kind  of  values  are  created ;  it  is  only  the 
quantity  or  amount  that  is  important :  the  larger  the  amount,  the  greater 
the  ability  to  pay  off  the  national  indebtedness.  Therefore,  if  gold 
mining  gives  a  greater  income  than  any  other  branch  of  industry,  it  in 
so  far  increases  the  ability  of  the  nation  to  pay  off  the  public  debt. 

Whether  such  is  the  fact  or  otherwise  is  a  question  not  readily  deter- 
mined ;  but,  until  it  is  settled  in  the  affirmative,  we  cannot  decide  that 
gold  mining  adds  especially  to  the  ability  of  a  nation  to  pay  its  indebted- 
ness. A  million  dollars'  worth  of  cotton  or  wheat  goes  just  as  far  in 
paying  the  public  debt  as  a  million  dollars1  worth  of  gold. 

The  vast  deposits  of  gold  in  the  West  give  to  the  United  States, 
virtually,  a  new  article  for  export.  If  the  production  of  that  article 
makes  the  aggregate  industry  of  the  country  more  profitable  than  it 
would  otherwise  have  been,  then  the  nation,  in  so  far  as  this  is  true,  is 
more  able  to  discharge  its  public  indebtedness,  but  not  otherwise. 

But  there  is  yet  another  view  of  the  relation  of  gold  mining  to 
national  indebtedness.  Suppose  that  by  the  discovery  of  richer  mines, 
or  improved  methods  of  mining,  the  cost  of  getting  gold  should  be 
reduced  one-half.  In  such  a  case,  gold  would  fall  to  half  its  present 
value ;  that  is,  commodities  would  double  in  price ;  and  the  farmer,  for 
example,  would  get  two  dollars  per  bushel  for  corn,  instead  of  one 
dollar,  and  could  pay  off  his  share  of  the  national  debt  with  one-half 
the  quantity  it  would  otherwise  cost  him.  So  of  all  producers.  Although 
this  is  not  likely  to  take  place  very  soon,  if  at  all,  it  is  quite  certain  the 
tendency  of  things  is  in  that  direction.  This,  however,  is  not  a  sufficient 
reason  for  postponing  the  payment  of  a  national  debt  to  a  distant  and 
uncertain  future. 

DOES  THE  INCREASED  PRODUCTION  OF  GOLD  CAUSE  ANY  EXTRAORDI- 
NARY INCREASE  IX  THE  PRODUCTION  OF  OTHER  VALUES? 

The  general  impression  is,  that  the  opening  of  new  and  productive 
mines  gives  a  great  stimulus  to  industry,  and,  even  more  than  this,  that 
it  imparts  new  life  and  activity  to  commerce,  and  rapidly  increases  the 
general  wealth. 

If  so,  how,  and  why  ? 

Let  us  look  at  the  facts  of  the  case.  As  soon  as  the  discoveries  in 
California  and  Australia  were  made,  multitudes  from  all  parts  of  the 


484  APPENDIX. 

world  flocked  to  the  mining  regions.  An  immense  amount  of  labor  was 
at  once  diverted  from  various  departments  of  industry  to  the  new  busi- 
ness.  Capital  to  an  enormous  amount  was  invested  in  the  same  en- 
terprise. The  whole  trade  and  industry  of  the  world  was  laid  under 
contribution  by  the  great  movement ;  and  production,  in  all  the  countries 
from  which  the  miners  and  capital  were  drawn,  was  of  course,  by  so 
much,  diminished.  Neither  the  men  nor  the  capital  were  unemployed 
before  ;  and  now  they  only  changed  from  one  employment  to  another. 

Perhaps  it  may  be  said,  that  the  business  of  mining  was  vastly  more 
profitable  than  the  ordinary  occupations  in  which  labor  and  capital  are 
employed,  and  therefore  there  was  a  greater  production  of  value,  and 
therefore  an  extension  of  commerce  by  so  much.  But  that  is  the  point 
to  be  proved.  It  is  disbelieved  by  those  who  have  examined  the  matter 
most  carefully,  that  mining  has,  on  the  whole  and  in  the  long-run,  been 
more  profitable  than  other  industry.  If  every  thing  were  taken  into  ac- 
count, it  is  uncertain  whether  there  has  been  any  extraordinary  increase 
of  general  production  in  consequence  of  the  new  discoveries  of  gold. 

The  question  in  this  case  really  is,  Has  the  grand  total  of  those  utilities 
which  men  desire,  and  which  contribute  to  their  welfare  and  happiness, 
been  increased  by  the  gold  discoveries  in  California  ?  No  doubt  the 
wealth  of  the  world,  when  reckoned  in  dollars,  has  been  increased  by 
these  discoveries,  because  more  dollars  have  been  created,  both  metallic 
and  paper ;  and  those  dollars  have  raised  prices.  But  have  the  utilities 
of  the  world  been  multiplied  in  consequence  of  the  increase  of  gold? 

About  $1,500,000,000  have  probably  been  added  (from  California  and 
Australia)  to  the  currency  and  bullion  of  the  world.  Of  this  amount, 
the  United  States  has  furnished  an  average  of,  say,  about  $50,000,000 
per  annum  from  1849  to  1867. 

The  whole  annual  production  of  wealth,  or  values  of  every  kind,  in  the 
United  States,  has  been  estimated  as  high  as  $4,000,000,000  per  annum  ; 
but,  assuming  it  has  averaged  since  the  gold  discoveries  (1849)  but 
$3,000,000,000,  then  the  gold  production  has  been  just  one-sixtieth  of 
the  whole  production  of  the  country,  or  exactly  two  per  cent.  We 
should  presume  this  to  be  a  large  estimate  ojf  the  proportion  of  gold  to 
the  sum  total  of  values  created  in  the  United  States  annually.  LTso,  we 
can  see  what  the  relative  importance  of  gold-mining,  as  a  branch  of  in- 
dustry, in  the  United  States  is. 

The  proportion  of  gold  production  in  the  British  empire  is  still  less 
than  with  us.  If  this  be  so,  we  can  make  an  aproximate  estimate  as  to  the 
proportion  which  gold-mining  in  Australia  and  California,  as  a  branch  of 
production,  bears  to  the  aggregate  production  of  the  world ;  and  we  shall 
safely  conclude  that  it  is  only  a  fraction  of  one  per  cent. 

But  it  may  be  urged  in  reply  to  all  this,  that  gold-mining  has  created 
a  large  and  populous  State  on  the  Pacific,  which  would  not  have  existed 


APPENDIX.  485 

but  for  the  gold  discoveries,  and  caused  a  more  rapid  settlement  of 
California  (and  the  same  may  be  said  of  Australia)  than  would  have 
otherwise  taken  place  ;  but  that  does  not  prove  that  gold-mining  enriches 
a  State  faster  than  other  forms  of  industry. 

It  is  a  pertinent  fact,  that  the  agricultural  capacity  of  the  country  has 
been  found  so  great,  that  cultivation  rather  than  mining  is  fast  becom- 
ing the  most  important  industrial  interest,  and  that  the  former  may  soon 
become  the  most  extensive,  because  the  most  profitable,  business  in  Cali- 
fornia. 

But  it  maybe  further  urged,  that  "  there  has  been  an  unwonted  ex- 
tension of  commerce  since  the  gold  discoveries."  Very  true ;  but  so 
there  would  have  been,  had  no  such  discoveries  taken  place.  Steam 
travel  and  transport  has  been  enormously  enlarged  within  the  same 
period  (say  the  last  seventeen  years)  ;  immense  regions  of  the  East  have 
been  opened  to  the  products  and  manufactures  of  the  more  civilized 
parts  of  the  earth;  and,  of  course,  a  rapid  extension  of  trade  has  taken 
place. 

GENERAL    CONCLUSIONS. 

(a)  Those  nations  that  produce  gold  lose  by  all  substitutes  used  in- 
stead of  it,  either  by  themselves  or  others. 

(6)  Those  nations  that  have  no  such  substitutes  gain  in  commerce  all 
that  is  thus  lost  by  others. 

(c)  Every  community  that  introduces  any  thing  but  gold  or  silver 
into  its  currency,  violates  the  law  of  value,  and  disturbs  the  commerce 
of  the  world. 

(d)  Other  things  equal,  the  industry  of  each  country  is  effective 
just  in  proportion  to  the  accuracy  of  the  standard  by  which  its  products 
are  measured ;  that  is,  as  it  corresponds  with  the  universal  measure  of 
value. 

(e)  The  peoples  of  the  earth,  collectively,  gain  little  in  utilities  by  in- 
creasing the  quantity  of  the  precious  metals,  so  far  as  used  as  currency; 
the  larger  quantity  having  no  more  power  in  exchange  than  the  smaller 
one. 

(f)  The  gold-producer  in  any  country  is  injured  by  the  use  of  either 
mixed  or  credit  currency  in  every  part  of  the  world,  since  every  substi- 
tute for  gold  as  currency  diminishes  the  natural  value  of  his  product ; 
but  he  is  more  especially  injured  by  its  use  in  his  own  country. 

(g)  When  gold  ceases  to  be  the  only  legal  currency  of  a  country,  it 
is  demonetized,  and  no  longer  measures  values. 

(h)  The  general  production  of  wealth  cannot  be  essentially  increased 
by  additions  made  to  the  coin  and  bullion  of  the  world. 

(i)  Gold-mining  no  more  increases  the  ability  of  a  government  to  dis- 
charge a  national  debt,  than  any  other  branch  of  industry  equally  pro- 
ductive or  profitable. 


486  APPENDIX. 


APPENDIX  A. 

It  may  be  objected  to  Table  V.,  pages  177-8,  that  it  does  not  give  a 
fair  representation  of  prices,  because  one  of  the  articles  included  (mess 
pork)  is  so  much  greater  in  value  than  the  rest  as  to  decide  tin:  char- 
acter of  the  general  result.  We  have  therefore  selected,  from  the  same 
Financial  Report  (1863),  ten  other  commodities-,  and  present  them  in  the 
following  table,  which,  it  will  be  seen,  corroborates  Table  V.,  in  that  it 
affords  the  same  general  facts;  viz.,  that  prices  rise  and  fall  with  the 
variations  in  the  quantity  of  the  currency.  The  commodities  taken  are,  — 
Northern  corn,  per  bushel;  anthracite  coal,  per  ton  ;  Liverpool  coal,  per 
chaldron  ;  fish,  per  quintal ;  pig  lead,  per  100  lbs. ;  sperm  oil,  per  gall. ; 
tallow,  per  100  lbs.  ;  mess  beef,  per  bbl.  ;  lard,  per  100  lbs. ;  and  clover- 
seed,  per  100  lbs.  These,  it  will  be  seen,  present  a  lair  average  as  to 
the  amount  of  value  in  each. 

The  result  obtained  from  a  table,  constructed  from  all  these,  is  as 
follows :  — 

First  six  years,  1834  to  1889,  the  aggregate  average 

price  was $72.51.  —  Currency,  S14.24. 

1840  to  1845,  the  aggregate  average  price  was  .     .    52.97.  —  Currency,      8.69. 
1846  to  1851,  „  „  .     .     54.08.  — Currency,     10.23. 

1852  to  1857,  „  „  .     .    69.77.— Currency,     14.49. 

The  variations  in  prices,  as  compared  with  the  quantity  of  currency, 
do  not  correspond  exactly,  as  will  be  observed.  This  is  owing  to  what 
has  been  noticed  in  the  body  of  this  work;  viz.,  that,  when  currency  is 
redundant,  a  portion  of  it  is  absorbed  in  discharging  the  larger  volume 
of  credit  obligations,  which  an  unnatural  expansion  gives  l'ise  to. 


APPENDIX  B. 

SALARIES    OF    MINISTERS. 

Wishing  to  verify,  in  different  ways,  the  truth  of  the  principle  which 
I  laid  down  in  1854  (see  "Merchants1  Magazine,"  vol.  xxxi.  No.  2, 
and  also  stated  on  page  257  of  this  work),  that  "  salaries  and  wages 
never  rise  so  soon,  or  so  much,  as  commodities,  from  an  expansion  of 
the  currency,1''  an  invitation  was  addressed  to  clergymen,  asking  them 
what  advance  had  been  made  in  their  salaries  from  18G0  to  1865. 
Information  was  received,  in  all,  from  one  thousand  ministers,  of  eight 
different  denominations,  residing  in  eighteen  States,  with  salaries  ranging 
from  three,  hundred  to  five  thousand  dollars.  From  four  hundred  and 
fifty  of  these,  the  answers  were  so  explicit  as  to  present  the  following 
precise  results  :  — 


APPENDIX.  487 

Average  salaries  in  1865 $907.28 

„  „       iu  1860 772.38 

Average  advance $134.90 

„  „       in  gratuities 32.77 

Aggregate  average  advance  in  all $167.67 

Average  advance  in  salaries 17.5  per  cent. 

„  „        in  salaries  and  gratuities    .    .     .     21.7        „ 

From  the  remaining  five  hundred  and  fifty,  the  information  was  suffi- 
ciently definite  to  enable  me  to  state,  that  the  advance  in  the  salaries  of 
the  one  thousand  ministers  of  the  Congregational,  Methodist,  Baptist, 
Unitarian,  Universalist,  Episcopal,  Presbyterian,  and  Lutheran,  taken 
together,  was  not  over  twenty  per  cent. 

WAGES   OF   SCHOOL-TEACHERS. 

The  wages  of  school-teachers,  in  Massachusetts,  Connecticut,  New 
Hampshire,  and  Vermont,  advanced,  from  1860  to  1866,  on  an 
average,  as  follows  :  — 

Male  teachers 37.5  per  cent. 

Female  teachers 26.0        „ 

Average  of  both  sexes 31.7        „ 

The  greater  part  of  this  rise  was  undoubtedly  in  the  last  year,  as  the 
returns  from  Massachusetts  show,  that,  from  1860  to  1865,  the  advance 
was  only  8{  per  cent  for  males  ;  for  females,  94  per  cent ;  average,  8.7. 
It  is  doubtful  if  the  rise  of  teachers'  wages,  throughout  New  England, 
from  1860  to  1865,  was  equal  to  twenty  per  cent ;  indeed,  from  the  ex- 
ample of  Massachusetts,  it  must  be  presumed  to  have  been  much  less. 

The  salaries  of  ministers  and  teachers  have  both  been  advanced,  I  have 
reason  to  believe,  considerably  since  1865,  but  not  to  half  the  extent  of 
even  the  present  advance  in  prices  (1867)  over  those  of  1860.  These 
last  two  classes  have  suffered  far  more  reduction  of  actual  income,  when 
reckoned  in  commodities,  than  laborers ;  doubtless,  for  the  principal 
reason  that  their  services  are  not  realized  in  vendible  commodities, 
and,  therefore,  not  so  readily  affected  by  the  rise  of  prices 

WAGES   OF   LABOR. 

An  additional  fact  in  point,  in  regard  to  the  rise  in  wages,  has  been 
furnished,  in  the  Report  of  the  United-States  Revenue  Commission  of 
1865-6,  page  333  :  — 

The  cost  of  labor,  per  ton  of  2,000  pounds  of  cast  steel,  delivered 

at  Pittsburg  warehouse,  in  1860,  was $45.07 

Cost  of  same  in  1864-5 62.32 

Enhanced  cost  of  labor $17.25 


488 


APPENDIX. 


equal  to  thirty-eight  per  cent  advance  in  tbe  price  of  labor ;  while  we 
know  that  the  prices  of  commodities  had  advanced  more  than  one  hun- 
dred per  cent. 

The  Report  of  the  Massachusetts  Commissioners  on  the  Hours  of 
Labor,  1867,  page  15,  states  that  the  wages  of  39,216  operatives,  in  102 
establishments,  had  advanced  63.2  per  cent  between  the  years  1860  and 
186"),  inclusive.  But  they  conclude,  from  information  obtained  from 
different  employments,  "  that  the  average  advance  in  wages,  of  all  kinds 
of  labor,  throughout  the  State,  is  about  fifty  per  cent"  (page  16). 
Facts  of  this  kind  may  be  multiplied  indefinitely,  were  there  occasion 
for  them. 


PRICES    OP   CERTAIN   COMMODITIES. 

We  here  annex  a  table  of  prices  in  the  Boston  market,  of  seventeen 
different  commodities,  for  four  years,  taken  in  the  month  of  October  of 
each  year,  as  published  in  the  "  Boston  Journal"  of  Nov.  16,  1865  :  — 

Table,  shotting  the  Price  of  Sixteen  Commodities  in  the  Boston  Market,  from  1862 
to  1865,  inclusive. 


Articles. 

1862. 

1863. 

1864. 

1865. 

Corn,  Northern,  per  bushel .  . 
Cranberries,  per  bushel .... 

Advance  each  vear   .... 

.07 
.06* 
$3.00 
.18 
.09 
.12 
.85 

2.50 
.11 
.14 

8.50 
.08 
.Hi 
.06 
.35 

1.00 
14.50 

.06 

.09 

$3.00 

.22 

.12 

.14 

1.00 

4.00 

.16 

.18 

10.00 

.11 

.13 

.07 

.50 

1.00 

17.00 

.12* 
.13$ 

$3.00 

.45 

.18 

.20 

1.75 

2.75 

.22 

.30 

13.00 

.22 

.23 

.12 

.65 

2.00 

44.00 

.18 
.14 

$3.25 
.45 
.18 
.30 
1.12 
4.00 
.20 
.32 

17.00 
.26 
.30 
.13 
.85 
2.00 

46.00 

$31.73 

$37.78 
19  per  ct. 

$69.33 
83iperct. 

$76.68 
10^  perct. 

Advance  in  1865  over  the  prices  of  1862,  141  per  cent. 

It  will  be  observed,  that  the  above  are  articles  of  domestic  produce,  not  directly 
affected  by  custom  or  excise  charges. 


INDEX, 


INDEX. 


Ad-valorem  duties,  312,  313. 

Agriculture,  a  form  of  production,  24- 
26;  allows  little  division  of  labor,  41, 
42,  106;  or  application  of  machinery, 
61 ;  products  tend  to  increase  in  value, 
14,  15,  42;  affected  by  mixed  cur- 
rency, in  America,  205-207 ;  its 
wages  lowest  of  all,  261. 

Allen,  D.  O.,  quotation,  95. 

Allotment  system,  English,  416. 

American  civil  war,  developed  sanitary 
science,  44;  effect  on  consumers  of 
cotton,  83;  encouraged  cotton  cul- 
ture elsewhere,  88;  influenced  by 
mixed  currency,  188,  189;  did  not 
encourage  industry,  410. 

Amsterdam,  Bank  of,  225,  226. 

Apprenticeship,  shortened  by  division  of 
labor,  38,  39. 

Arbuthnot,  quotation,  50. 

Art,  a  form  of  consumption,  397-399. 

Atkinson,  Edward,  statistics  of  cotton 
culture,  330. 

Balance  of  trade,  117-120. 
Bankruptcies,  relation  to  currencv,  156- 

160,  166-168;  correspond  to  quality 

of  currency,  203,  204. 
Banks,  mixed   currency,   141,    et  see/.; 

Suffolk,    164  ;      savings',    184-186  ; 

mixed  currency  favorable  to?    216- 

219;  English  Joint  Stock,  217,  218. 
Bank  of  England,   142,  199,  201,  228, 

247,  292,  363,  et  seq. 
Barter,  121,  122. 

Bascom,  Professor,  quotation,  6,  175. 
Bastiat,  F.,  illustrations  of  value,  9-13; 

quotations,  123,  294. 
Bequest,  laws  of,  371-379. 
Bills  of  exchange,  241-251. 
Book  accounts,  240,  241. 
Bounties,     compared    with    protective 

duties,  318,  319. 


Buildings,  how  affecting  rent  of  land, 

299-301. 
Burke,  Edmund,  quotation,  28 ;  law  of 

currency,  230. 

Cairnes,  Professor,  quotation,  political 
economy  belongs  to  the  same  class  of 
science  with  mechanics,  astronomv, 
&c,  4. 

Capital,  definition,  19;  growth  of,  19, 
20,  56,  57;  relation  to  labor,  21,  22; 
office  in  production,  31;  fuller  defi- 
nition, 55;  distinguished  from  wealth. 
55,  56;  divided  as  fixed  and  circulat- 
ing, 57,  58 ;  distinction  as  productive 
or  unproductive  rejected,  58-60;  co- 
operates with  labor,  60-76;  the  pro- 
portion between  them,  60-62;  can 
there  be  a  surplus?  64-66;  import- 
ance that  it  be  sacred  from  violence, 
66-68;  its  best  distribution,  68,  69; 
freedom  from  petty  restraints,  69-71; 
is  created  by  the  business  which  re- 
quires it,  94 ;  is  it  increased  by  issue 
of  paper  money  ?  207,  208 ;  or  made 
more  convenient  to  young  men? 
215,  216 ;  loaned  in  two  forms,  253 : 
its  remuneration  to  be  distinguished 
from  profits,  280;  applied  to  land. 
becomes  an  element  of  rent,  298;  is 
public  debt  capital?  355,  856;  must 
be  reproduced,  882,  444;  wealth  un- 
productively  applied  not  capital,  886; 
relation  to  population,  447,  458,  459. 

Charity,  its  place  in  political  economy, 
411,412;  discussed,  412,  et  sea. ;  how 
far  can  fictitious  employment  be  sub- 
stituted? 406,  407. 

Circulating  capital,  57,  58. 

Circulation  of  mixed-currency  banks, 
141,  145,  209;  fluctuations,  161,  282. 

Coal,  importance  of  its  proximity  to 
iron  ore,  94,  95. 


I 


492 


INDEX. 


Cobden.  his  French  treaty,  113,  114; 
opinion  of  mixed  currency,  223. 

Coinage,  peculiar  adaptation  of  gold 
and  silver,  127;  discussed,  130,  131 ; 
what  government  really  does  by  it, 
170-172. 

Cohvell,  Stephen,  his  estimate  of  secu- 
rities in  the  United  States,  214. 

Congress  of  nations,  437-440. 

Consolidation  of  national  debt,  341-345. 

Consumption,  place  in  the  science,  23, 
56,  57;  mistaken  consumption,  72, 
73,  3S3-386 ;  how  consumption  comes 
into  relation  with  production,  75,  76 ; 
mischievous  consumption  should  be 
taxed,  311,  320,  321;  to  what  extent 
consumption  should  be  taxed,  313, 
314;  consumption  discussed,  380,  et 
seq. 

Contraction  of  mixed  currency,  how  ef- 
fected, 157-159;  illustrated,  161,  162, 
168. 

Contracts,  effects  upon  them  of  credit, 
134,  135;  of  mixed  currency,  166- 
174,  181-188. 

Convertibility  of  currency  distinguished 
from  redeemableness,  140,  141;  of 
different  kinds  of  currency,  232. 

Cooke,  Jay,  his  pamphlet  on  National 
Debt,  353-362. 

Co-operation  of  labor  (see  Division  of 
Labor),  54-71. 

Co-operative  associations,  274-279. 

Corporations,  not  generally  so  effective 
as  partnerships,  69. 

Corporate  foreign  indebtedness,  346. 

Cotton,  relation  to  gold,  128;  how  af- 
fected by  mixed  currency,  205-207; 
propriety  of  export  or  excise  duty, 
327-330. 

Credit  currency,  defined,  124;  discussed, 
131-138;  is  it  capital?  207;  resumA, 
232. 

Credits,  should  they  be  taxed?  338,  339. 

Culture  economic,  field  of  this  agency, 
71-76. 

Currency,  defined,  124;  its  four  kinds, 
124,125;  are  deposits  currency  ?  151 
-153 ;  are  bills  of  exchange  currency  ? 
249-251. 

Customs,  frauds  in,  119,  120,  313;  a 
mode  of  taxation,  312;  discussed, 
312-318. 

Debt,  evidences  of,  240-251;  national, 
consolidation  of,  341-345;  fallacies 
respecting,  353-362,  410,  411;  indi- 
vidual, affected  by  credit  currency, 
132;  by  mixed  currency,  166-174, 
181-183. 

Deferred  income,  324,  325. 

Deposits,  141,  146;  analyzed,  148-154; 
under  mercantile  currency,  231,  232; 
increased  by  usury  laws,  292. 

Destruction  of  wealth,  73,  380. 

Direct  taxation,  312. 

Discount,  its  limits,  97,  n 


Distribution,  its  place  in  the  science,  23; 
discussed,  252-379,  469,  470. 

Dividends,  how  classed,  287,  288. 

Division  of  labor,  its  place  in  produc- 
tion, 31;  illustrated,  32-34;  advan- 
tages, 34-39;  limitations,  40-43;  dis- 
advantages, 43-52 ;  the  balance  cast, 
53,  54 ;  rtsumd,  252. 


Education,  public,  402,  440-443 ;  of  the 
laborer,  affecting  wages,  262,  443; 
especially  woman's  wages,  265. 

England,  agricultural  class,  47,  369; 
corporations,  69 ;  compared  with  Bra- 
zil, 81;  protection,  90,  360;  value  of 
land,  95,  96;  emigration  caused  by 
American  protection,  99;  trade  with 
United  States,  111,  245;  depreciation 
of  Napoleonic  money,  135 ;  currency 
described,  202-205,  226,  227;  ex- 
change with,  247-249;  impoverish- 
ment of  masses,  369,  370 ;  mischievous 
consumption,  392;  pauperage,  412, 
416-418  ;  public  education,  440  ; 
causes  of  ''over  -  population,"  456, 
457. 

Entail,  375-379. 

"  Entrepreneur,"  279. 

Ethnical  characteristics,  affecting  man- 
ufactures, 27;  trade,  81;  consump- 
tion, 451. 

Europe,  rent,  294 ;  improvements  of 
soil,  299;  financial  system,  363,  et 
seq.;  luxury,  391;  aggregate  reve- 
nue, 405. 

Exchange,  its  place  in  the  science,  22, 
23;  a  form  of  production,  29-31;  ori- 
gin, 77;  principles  of,  78-85;  ob- 
structions, 85-117;  international  bal- 
ances, 117-120;  instruments  of,  121- 
251;  bills  of,  241-249;  are  they  cur- 
rency?  249-251;  fictitious  (bank), 
caused  by  usury  laws,  291,  292. 

Excise,  319,  320. 

Expansion  of  mixed  currencv,  how  ef- 
fected, 156,157;  illustrated,  161,  162, 
179 ;  affecting  manufactures,  191, 192 ; 
affecting  wages,  profits,  &c.,  302-306. 

Exports,  origin,  79,  80;  relation  to  im- 
ports, 117-120;  taxation  of,  325-330. 

Export  of  American  cotton,  328;  of 
American  stocks,  347-350. 

Fallacies  respecting  protection,  101- 
108;  mixed  currency,  207-223;  for- 
eign indebtedness,  350-353;  national 
.    indebtedness,  353-362. 

Fawcett,  Professor,  quotation,  77;  his 
account  of  co-operative  associations, 
274-279. 

Fertility,  an  element  of  rent,  297,  298. 

Fisheries,  a  branch  of  agriculture,  26. 

Fixed  capital,  57,  58. 

Foreign  indebtedness,  its  interest  in- 
cluded in  balance  of  trade,  120. 

Foreign  exchange,  243,  et  seq. 


INDEX. 


493 


France,  conflict  of  capital  and  labor,  22; 
injustice  to  capital,  67,  68;  beet-root 
culture,  102,  103;  commercial  treaty 
with  England,  113,  114;  revolution- 
ary money,  135;  trade  with  United 
States,  national  debt,  356,  562; 
growth  of  manufactures,  394;  pri- 
vate frugality,  394;  public  extrava- 
gance, 396;  its  war  system,  461. 

Free  institutions  not  suited  to  protec- 
tive policy,  109,  110. 

Free  banking,  230,  231. 

Freedom  essential  to  secure  just  wages, 
255;  just  profits,  281. 

Friendly  societies  of  Great  Britain,  269- 
271,  415. 

Frugality,  20,  445;  affecting  wages,  262, 
263;  dependent  on  sacredness  of 
property,  289,  450;  examples  of  pub- 
lic frugality,  296,  404. 

Funding,  its  origin,  365. 

Genoa,  trade  and  decline,  64 ;  bank  of, 
225. 

Gibbon,  quotation,  384,  395. 

Gold,  properties,  127-130;  relations  to 
credit  currency,  132 ;  sufficiently 
plentiful  for  commerce,  213-215. 

Government,  influence  on  economic  de- 
sires, 74;  claim  in  distribution,  254, 
449 ;  a  copartner  in  production,  307, 
308;  necessity  for,  401,  402. 

Government  bonds,  taxation,  339-345; 
exportation,  347-350. 

Great  Britain,  estimated  wealth,  63; 
currency,  202-205 ;  abolition  of  usury 
laws,  290 ;  import  of  breadstuff's,  ef- 
fect on  rent,  298;  taxation,  313,  320, 
321 ;  consolidation  of  debt,  344,  347 ; 
financial,  361-371;  primacy  in  man- 
ufactures threatened  by  France,  393; 
luxurious  consumption,  394;  church 
establishment,  402;  public  expendi- 
ture, 405. 

Health,  affected  by  employments,  43- 
49 ;  risks  to,  affecting  wages,  261. 

Holland,  reason  for  commercial  enter- 
prise, 28;   pauperism,  412. 

Immediate  distinguished  from  ulti- 
mate resources  in  bank  accounts, 
140,  145,  147;  are  stocks  included? 
153,  154. 

Imports,  origin,  79,  80;  relation  to  ex- 
ports, 117-120;  how  related  to  pro- 
tective duties,  193-195;  to  mixed 
currency,  195,  196;  to  rent,  298;  of 
foreign  materiel  in  war,  424. 

Incomes,  affected  by  credit  currency, 
133;  by  mixed  currency,  221-231, 
305. 

Income  tax,  322,  339;  political  consid- 
erations, 333. 

Indebtedness,  discharged  in  currency, 
165;  national  (United  States),  its 
consolidation,  341-345;  fallacies  re- 


specting, 353-362 ;  national,  relations 
to  modern  financial  system,  369 ;  for- 
eign national,  interest  included  in 
balance  of  trade,  120;  economy  of, 
346-353. 

India,  rebellion  in,  affecting  trade,  83; 
affected  by  rebellion  in  the  United 
States,  88 ;  distance  of  coal  from  iron 
ore,  95 ;  cotton  culture,  328. 

Indirect  taxation,  312,  314,  365,  368,  369. 

Individual  opposed  to  public  or  corpo- 
rate enterprise,  40,  50-52,  69,  403, 
404,  407-410,  414,  419.  (See  Co- 
operation and  Division  of  Labor.) 

Infancy  of  manufactures,  argument  from, 
101,  102;  sophistry  of  the  argument, 
103,  104. 

Inheritance,  laws  of,  371-379. 

Interest,  how  related  to  mixed  currency, 
196-201,  220,  302-306;  in  England, 
204;  its  place  in  distribution,  253; 
discussed,  288-294. 

Invention  facilitated  by  division  of  la- 
bor, 35,  36;  requiring  increase  of 
capital,  448. 

Ireland,  causes  of  her  decline,  63,  64; 
causes  of  emigration,  104 ;  famine  of 
1847,  effect  on  finances,  199;  cur- 
rency, 202,  228;  pauperism,  420. 

Iron,  manufacture  in  the  United  States, 
93-101 ;  period  of  its  use,  129. 

Jewish,  only  race  not  deterred  from 
gain  by  persecution,  68. 

Labor,  defined,  18 ;  work  of  slaves  not 
labor,  18,  19 ;  relation  to  capital,  21, 
22;  division  of,  31-54;  co-operation 
with  capital,  60-71;  proportion  to 
capital,  60-66;  productive  or  unpro- 
ductive? 71-73;  classified,  253,  254; 
combinations,  269-71. 

Land,  the  foundation  of  rent,  295;  ap- 
pendages, 299-301. 

Learning,  economic  relations,  74 ;  affect- 
ing wages,  262;  as  a  form  of  con 
sumption,  397-399. 

Legal  tender,  when  unjust,  132-138; 
how  far  just,  170-172;  national-bank 
currency,  how  far  legal  tender,  234. 

Legislation,  relations  to  wealth,  1,  2,  4, 
5 ;  when  mischievous,  69-71 ;  in  a 
free  government  fatal  to  protection, 
109,  110 ;  does  not  determine  the 
value  of  money,  131 :  cannot  control 
premium  on  gold,  132;  can  it  restrain 
the  issue  of  credit  currency?  134- 
136 ;  can  it  regidate  mixed  currency  V 
219,  220. 

Levi,  Professor,  quotation,  63 ;  estimates 
revenues  of  Great  Britain  from  dis- 
advantageous consumption,  320,  321; 
estimates  contribution  of  the  several 
classes,  370. 

Licenses,  a  mode  of  taxation,  321. 

Life,  affected  by  employments,  43-49; 
its  risks  affecting  wages,  260. 


404 


INDEX. 


Location,  an  (lenient  of  rent,  296. 

Luxury,  defined,  386-388;  relations  to 
wealth,  888-892;  on  the  degree  of, 
892  897,  449,  450;  relation  to  popu- 
lation, 460. 

Mackintosh,  quotation,  84. 

Malthus,  his  theory  of  population,  452, 
et  seq. 

Manufactures,  their  products  tend  to  de- 
crease in  value,  14,  15;  a  form  of 
production,  26-29;  law  of  their  diffu- 
sion, 27,  28;  amount  of,  28,  29;  be- 
long to  old  and  rich  countries,  105, 
106;  affected  by  mixed  currency,  190 
-196. 

Martin,  J.  G.,  reference  to,  190-200. 

Massachusetts,  shoe  trade,  104;  cur- 
rency, 163,  164, 185,  228,  234;  rate  of 
taxation,  331 ;  vital  statistics,  462-464. 

McCulloch,  his  theory  of  inheritance, 
372,  373. 

Mechanical  employments  affecting 
health  and  life,  44,  45. 

Medium  of  exchange,  what,  122,  123 ; 
is  a  mixed  currency  satisfactory? 
164-168. 

Mendicancy,  414,  421. 

Mental  power,  its  wages,  266-26S. 

Mercantile  currency,  defined,  125;  dis- 
cussed, 224-232. 

Mercantile  theory,  the,  54. 

Mill,  J.  S.,  definition  of  labor,  18;  states 
law  of  currency,  215 ;  quotation,  279, 
n.,  308. 

Mining,  a  branch  of  agriculture,  57,  58. 

Mistaken  consumption,  72,  73 ;  dis- 
cussed, 383-386,  445. 

Mixed  currency,  defined,  124,  125;  dis- 
cussed, 138-223 ;  does  it  satisfactorily 
perform  the  function  of  money?  155- 
184;  its  effects,  184-207;  fallacies  re- 
garding it,  207-223 ;  cheapness,  208- 
212,  227 ;  resume,  232 ;  effect  on  inter- 
est, 292,  293 ;  complicates  the  whole 
scheme  of  distribution,  302-306 ;  neu- 
tralizes value  of  government  bonds 
sold  abroad,  348,  349. 

Money,  defined,  124,  169-172;  different 
tonus,  126,  127;  is  mixed  currency  a 
satisfactory  substitute  ?  155-184;  is 
money  sufficiently  plentiful  for  com- 
merce? 213-215;  its  relations  to  a 
State  Of  war,  422-424. 

Morality,  relations  to  political  economv, 
391-393,  449-451,  461,  462. 

Moral  power,  its  wages,  266-268. 

Mortgages,  should  they  be  taxed  ?  337- 
339. 

Mortmain,  371-373. 

Nation Aii-B  ask  system,  compared  with 
the  State-bank  system,  233-240. 

National  taxation,  defined,  311;  dis- 
cussed, 312-330;  how  supplemented 
by  State  taxation,  336,  337;  debt, 
341-345,  353-362,  410. 


Natural  powers  confer  no  value,  10,  12, 

16. 
Necessary  wages,  255,  256 ;  profits,  284, 

285. 
Newcombe,  S  ,  his  "  Financial  Policy," 

424;  quotation,  467. 
New  England, its  natural  industry,  114; 

originally  opposed  to  protection,  116; 

currency,  168,   164;    its  agricultural 

competition  with  the  Western  States, 

300;  public  education,  442,  443. 
New  York,  hanks  of,  142. 
Nominal  distinguished  from  real  wages, 

256,  257. 

Opdtke,  George,  computes  profits  of 

importers,  &c,  317,  318. 
Overstone,  maintained  that  deposits  are 

not  currency,  151. 

Parish  allowance,  English,  415. 

Pauperism.    (See  Pour  Laws.) 

Peel,  his  Bank  Act,  199,  200;  quota- 
tion, 201. 

Personal  estate,  defined,  280,  n. 

Physical  power,  its  wages,  266-268. 

Political  economy,  defined,  1 ;  a  positive 
science,  3,  4;  embarrassed  by  legis- 
lation, 4,  5;  by  prejudice  and  self- 
interest,  5,  6 ;  by  loose  phraseology,  7. 

Politics,  relation  "to  political  economy, 
1,  2,  15,  16,  391,  449-451. 

Poll-tax  pavers,  political  danger  from, 
332,  333." 

Poor-laws,  411,  ct  seq.     (See  Charity.) 

Population,  447,  4">2,  ct  seq. 

Price,  what,  174;  distinguished  from 
value,  175,  176;  how  affected  by  in- 
crease of  currency,  215;  is  the  only 
thing  gained  by  currency  expansion, 
223,  354. 

Primogeniture,  supported  by  Mr.  Mc- 
Culloch, 373;  discussed,  375-379. 

Production,  its  place  in  the  science,  22 ; 
its  forms,  24-31 ;  conditions  of  high- 
est production,  31 ;  discussed,  32-76, 
410. 

Productive  or  unproductive  capital,  58 
-60;  labor,  71-73. 

Profits,  place  in  distribution,  253,  254; 
discussed,  279-288;  affected  by  tem- 
porary rise  of  wages,  286,  287;  by 
currency  inflation,  302-306:  of  im- 
porter, retailer,  &c,  317.  318. 

Property  tax.  discussed,  331-339. 

"Protection,"  from  physical  causes,  85- 
87;  for  industrial  purposes,  91-108; 
for  public  justice,  1":'.  110;  for  na- 
tional security,  110-112:  for  retalia- 
tion, 112-114;  defeated  by  mixed 
currency,  190-196;  cost  of  '•protec- 
tion" through  customs  greater  than 
by  bounties,  314-317;  not  secured 
by  national  debt,  354-360. 

Publication  of  tax  lists,  rightfulness  of, 
310,  324. 

Public  consumption,  401-410. 


INDEX. 


495 


Rates  of  interest,  196-201;  of  exchange, 
246,  247;  of  profits,  283,  284.     . 

Rent,  an  apparent  anomaly,  17 ;  how  af- 
fected by  credit  currency,  133 ;  place 
in  distribution,  253;  discussed,  294— 
302;  affected  by  currency  inflation, 
302-306. 

Reproduction  (human),  chiefly  through 
agriculture,  25,  47-49;  how  affected 
by  destitution,  luxury,  &c.,  453. 

Reproduction  of  wealth,  75,  76,  377. 

Reproductive  consumption,  444,  et  seq. 

Retaliation  in  commercial  legislation, 
112-114. 

Revolution,  American,  vast  transfers 
without  equivalent,  134,  135;  debt 
incurred,  363;  expense  to  England, 
366. 

Ricardo,  his  theory  of  rent,  398,  p. 

Rome,  money,  126;  luxury,  396;  pau- 
perage,  413. 

Savings'  banks,  relations  to  mixed  cur- 
rency, 184-186;  character  of  deposi- 
tors, 358. 

Scotland,  currency,  202,  203, 228 ;  public 
education,  442,  443. 

Sex,  distinction  made  in  wages,  263- 
265. 

Shoe  trade  of  the  United  States,  104. 

Silver,  properties  of,  127-130. 

Small  notes,  22S,  229. 

Smith,  Adam,  pin-making  in  his  time, 
34 ;  distinguishes  between  productive 
and  unproductive  labor,  71-73;  the- 
ory of  cheap  currency,  211,  212;  defi- 
nition of  wages,  255;  principles  of 
taxation,  308-310. 

Smith,  J.  Y.,  quotation,  190. 

Social  condition,  affecting  trade,  81,  83. 

Specific  duties,  312,  313. 

Speculation,  affects  wages  differently 
from  other  commodities,  257,  258. 

Spirits,  taxation  of  in  Great  Britain, 
320,  321. 

Stamps,  a  mode  of  taxation,  321. 

Standard  of  value,  what,  123,  169-72; 
does  a  mixed  currency  act  justly  as 
such?  172-184. 

State  taxation  (American),  discussed, 
331-339. 

Stocks,  held  by  banks,  143;  not  imme- 
diate resources,  153, 154. 

Strikes,  272,  273. 

Subsistence  (human),  nature's-provision, 
375-377;  relation  to  population,  452, 
et  seq. 

Suffolk-bank  system,  164. 

Sumptuary  laws,  discussed,  399-401. 

Surplus  production  necessary  to  trade, 
83. 

Suspension  better  than  severe  contrac- 
tion with  mixed  currency,  168  220, 
221. 

Tariff,  history  of  American,  115-117, 
192-196. 


Taxation,  place  in  distribution,  254; 
discussed,  306-339;  of  government 
bonds,  340-345. 

Tea,  taxation  in  Great  Britain,  313. 

Tender,  legal,  132-138,  170-172,  234. 

Territorial  division  of  labor,  81-85. 

Territorial  endowments  affecting  manu- 
factures, 28;  trade,  80;  government 
expenditures,  404,  405,  450,  451; 
amount  of  capital,  447. 

Tobacco,  once  legal  tender  in  Virginia, 
126;  taxation  in  Great  Britain,  320, 
321. 

Trade,  relations  to  exchange,  77,  78  (see 
Exchange);  balance  of,  117-120. 

Trades'  unions,  271,  272,  415. 

United  States,  estimated  wealth,  62, 
63;  iron  manufacture,  93,  101,  103; 
immigration,  99;  shoe  manufacture, 
104;  true  economical  interests,  114- 
117;  prosperity  attributed  to  mixed 
currency,  212,  213;  national-bank 
system,  233-240;  rents,  294;  taxa- 
tion, 307;  unnecessary  losses  during 
rebellion,  137,  138;  rapid  depletion 
in  1864-65,  350;  railroads,  384;  pub- 
lic education,  402;  public  expendi- 
ture, 405 ;  pauperism,  412,  413,  419. 

United-States  Bank,  control  of  interest, 
198;  of  exchange,  247. 

Usury  laws,  290-293. 

Utility,  distinguished  from  value,  14-17. 

Value,  its  elements,  8;  illustrated,  9- 
13;  distinguished  from  utility,  14-17 
(see  Standard  (if  value);  a  property 
of  gold  and  silver,  127,  165,  166;  its 
laws  do  not  control  mixed  currency, 
155,  156;  distinguished  from  price, 
175,  176. 

Value-currency,  of  two  kinds,  124,  125 ; 
how  regulated,  180,  181;  is  it  more 
expensive  than  mixed  currency  ?  208 
-212. 

Venice,  trade  and  causes  of  decline,  64 ; 
hostile  commercial  legislation,  113. 

"Wages,  affected  by  protective  legisla- 
tion, 113;  classified,  253-255;  dis- 
cussed, 255-265;  second  classification, 
266;  discussed,  266-208;  a  temporary 
rise  in  wages  affecting  profits,  286, 
2S7;  how  affected  by  mixed  cur- 
rency, 256,  257,  302-306;  variations 
in,  397. 

Wants  (human),  place  in  the  science, 
2-4;  affecting  wages,  255,  256;  the 
spring  of  wealth,  378-390. 

War,  affecting  trade,  83;  affected  by 
trade,  84,  85;  how  far  requires  pro- 
tective legislation,  110-112;  relations 
to  mixed  currency,  187-189;  to  mod- 
ern financial  system,  369;  the  finance 
of,  422-424;  economy  of  war  system, 
425,  et  seq.;  affecting  population, 
461. 


496 


I  N  1)  K  X. 


Wealth,  defined,  7,  8;  forms  in  which 
created,  24 ;  is  debt  wealth  ?  353-355 ; 
docs  it  belong  to  the  living  or  the 
dead?  371-373. 

Western  States  of  America,  mineral 
wealth,  108;  their  natural  industry, 
114;  how  all'ccted  bv  mixed  cur- 
rency, 205-207;  rent,  "300,  301;  ne- 
cessity of  taxing  credits,  339. 


Wheat,  price,  how  affected  by  mixed 
currency,  205-207;  bv  export  duty, 
325,  326. 

Woman,  her  wages,  263-265;  should 
she  be  taxed?  809;  largely  depend- 
ent for  support,  411. 

Yatman,  J.  V.,  his  tables  of  currency, 
162. 


THE     END. 


Cambridge  :  Stereotyped  and  Printed  by  John  Wilson  and  Son- 


wit: 


